After much buildup, the virtual summit between U.S. President Joe Biden and Chinese President Xi Jinping finally occurred. Although the end result of the virtual face-to-face meeting hardly provided much fanfare, the main point of the sit down was nevertheless incredibly significant. These two represent the biggest economies in the world. Thus, this summit should have some implications for stocks to buy.
Overall, as CNN reported, the “virtual summit between the two leaders saw no substantive policy on key issues such as climate, trade, the pandemic, or arms control….” However, it “did establish a dialogue that can be built on, potentially easing tensions — and allowing for a return to a more constructive, stable relationship.” Therefore, you shouldn’t ignore what the meeting might mean for certain stocks to buy.
Furthermore, perhaps the most significant outcome from the summit was that the two countries “have agreed to relax visa restrictions on each other’s journalists.” It might be a small step but in a world where trust in media has declined precipitously — particularly in the U.S. — the willingness to foster open communications for the international press represents a substantive signal. And this, of course, has serious implications for media stocks to buy.
While this last meeting may not have sparked as many fireworks as previous diplomatic negotiations, that doesn’t mean there weren’t any. As you might expect, Taiwan was a huge topic, an issue that has put the Biden administration on the hot seat. The president reiterated that Taiwan must choose its own path, which is a middle-of-the-ground position that the Chinese appear to be growing tired of. One thing’s for sure: defense-related stocks to buy look interesting.
Finally, some of the wordings within the summit showed that the U.S. and China have much work to do. President Xi criticized the U.S. influence in Taiwan, stating “[s]uch moves are extremely dangerous, just like playing with fire.” The summit may have been a non-event to many but there was enough feistiness to warrant implications for these stocks to buy.
- Comcast (NASDAQ:CMCSA)
- Disney (NYSE:DIS)
- New York Times (NYSE:NYT)
- Huntington Ingalls Industries (NYSE:HII)
- IHI Corp (OTCMKTS:IHICY)
- Palo Alto Networks (NASDAQ:PANW)
- Nike (NYSE:NKE)
As with any narrative featuring stocks to buy, you want to be careful, particularly with betting on geopolitical events. If the novel coronavirus pandemic taught us anything, it’s that nothing is off the table of possibilities. Therefore, perform your due diligence before making the final decision.
Stocks to Buy: Comcast (CMCSA)
Should the Biden-Xi virtual summit spark better relations with China, Comcast will be one of the clear beneficiaries among stocks to buy. Frankly, it’s all about the numbers. As Statista.com pointed out, the “Chinese box office has now overtaken North America as the largest film market in the world.”
Moreover, here’s an interesting tidbit. “While most cinemas remained closed around the world due to the COVID-19 pandemic, movie theaters began to reopen in China from July 2020.” If you think about it, China owns Hollywood. And with Hollywood itself reeling from the impact of the pandemic, Comcast can’t afford to anger its Chinese overlords.
Furthermore, it’s important to point out that while the Covid-19 crisis may have accelerated the headwinds impacting the box office, the pandemic itself wasn’t the original catalyst. Myriad factors have led to declining attendance at movie theaters, primarily the advent of streaming platforms and other at-home entertainment options.
In the nearer term, though, the loosening of restrictions for journalists will be a welcome headline for Comcast, considering its robust news media portfolio. Thus, CMCSA should be one of the winners among stocks to buy, although prospective investors should beware the equity unit’s presently weak technical posture.
Disney (DIS)
Another blue chip that would be among the top stocks to buy if relations between the U.S. and China normalize is Disney. The Magic Kingdom is no stranger to deftly negotiating the geopolitical landmine that is courting the billion-plus-strong Chinese audience without offending sensibilities at home. That at all came crashing to a head when Disney released its live-action version of Mulan last year.
In an op-ed, the Los Angeles Times described the movie as one of the most controversial of 2020. An uproar ensued “when it was revealed that Disney filmed part of ‘Mulan’ in Xinjiang, a region where China is believed to have detained at least 1 million Muslims — mostly ethnic Uighurs — in internment camps.”
“To critics, the rollout of ‘Mulan’ marks the latest example of Hollywood’s hypocrisy and willingness to sacrifice values to do business in China.” Ouch.
Recently, the New York Times mentioned some of the same talking points. However, it also mentioned an incontrovertible (though awfully inconvenient) truth. “No overseas market is more important to Hollywood than China, which is poised to overtake the United States and Canada as the world’s No. 1 box office engine.”
So, a cooling of tensions would do DIS stock plenty of good, making it one of the stocks to buy — or at least monitor closely.
Stocks to Buy: New York Times (NYT)
On a year-to-date (YTD) basis, shares of NYT stock are down almost 12%. To be fair, the company has enjoyed a fairly solid second half, with its trailing six-month performance registering a 9.3% return. But overall, the narrative hasn’t been too hot for one of the world’s most popular news media agencies.
Much of the problem, in my view, stems from the timing of the news cycle. Last year, there was plenty of stuff to discuss, ranging from the early strike and societal fears of the coronavirus pandemic to the various controversies that former President Donald Trump and his administration found themselves in. The loss of the latter, though the Times probably won’t admit it, was a huge loss.
Sure, the Times and its editorial staff were at odds with Trump’s policies and ideologies in general. However, in a content-hungry media environment, the two represented strange bedfellows.
Still, statements from both U.S. and Chinese officials that each side have relaxed visa restrictions for journalists presents hope that the Times can provide compelling coverage on this most important geopolitical storyline. Even if relations remain fractured, that alone could provide years of material for NYT.
Huntington Ingalls Industries (HII)
Admittedly, shipbuilder Huntington Ingalls Industries is in a troubled spot at the moment. Over the trailing month, HII stock has dropped nearly 11%. Considering that the company is one of the vital cogs in the U.S. defense infrastructure, it’s not the most encouraging of signs.
Also, it must be stated that if the Biden-Xi virtual summit promotes a positive relationship between the two underlying countries — and not just a temporary abstinence of harsh rhetoric — then Huntington Ingalls could potentially continue its downward slide. But I don’t necessarily see that happening, which is why investors ought to consider HII as one of the stocks to buy.
For one thing, dominance of the high seas has always been a top priority, not only for the U.S. Navy but for our broader foreign policy objectives. Irrespective of what may come from the virtual summit, Huntington Ingalls provides a critical service.
But factor in that China seeks to control economically vital sea lanes and you have an enticing (albeit cynical) catalyst for HII, one of the stocks to buy on this geopolitical narrative.
Stocks to Buy: IHI Corp (IHICY)
More than likely, a majority of you have not heard about IHI Corp, which isn’t surprising at all. As an unsponsored American depositary receipt — or an ADR issued without involvement nor consent of the associated foreign company — IHICY stock carries significant risks that extend beyond the core fundamentals.
Also, IHICY — as do probably most unsponsored ADRs — trade over the counter. In addition to volume concerns, you may come across wide bid-ask spreads, among other inconveniences.
However, I mention IHI Corp as one of the stocks to buy to show you that U.S.-China relations don’t just affect the stated countries but the rest of the world. Indeed, Reuters reported that Japan plans record spending for defense in light of the Chinese threat in the Asia-Pacific region. Furthermore, IHI, as the manufacturer of the Izumo-class helicopter destroyer, will play an increasingly important role under this narrative.
Now, the thing about the Izumo destroyers is that they’re flattops; thus, it’s always been possible to launch fighter jets like the F-35B, making them de-facto aircraft carriers. And that’s exactly what’s happening behind the scenes, creating an intriguing backdrop for IHICY stock.
Palo Alto Networks (PANW)
When it comes to data breaches and concerns about cybersecurity, mainstream news outlets tend to focus on Russia. While not taking anything away from the threat that our longtime adversary poses, China more than holds its own in terms of keeping U.S. cybersecurity officials awake at night.
Of course, it would be wonderful if we could normalize relations between the top two economic powers of the world. And we could have some kind of truce through diplomatic means. At the same time, we must never forget that China has its own ambitions, rapidly transitioning from a mostly agrarian society to one that’s a technological juggernaut.
Something tells me that it’s not going to stop peddling for our sake. Therefore, we’re going to need a counteracting cybersecurity infrastructure, which certainly bodes well for Palo Alto Networks.
One of the best stocks to buy in terms of sheer relevance, the geopolitical backdrop adds more intrigue to PANW’s bullish thesis. No matter what happens in future presidential elections, mitigating the Chinese cyber threat will take priority. Also, potentially permanent or semi-permanent changes in the labor force regarding work-from-home initiatives will likely boost demand for PANW.
Stocks to Buy: Nike (NKE)
For Nike and other powerful retail brands, the death of American hegemony is a stark reminder that they must play under a new set of rules. Back generations ago, these firms only had to worry about distinctly American interests. For instance, if an organization made a social faux pas, it knows to whom to apologize.
With China becoming a supremely powerful play in global consumer economics, western brands must perform a delicate, if not outright contradictory dance. For instance, last year, several companies issued statements of concern regarding allegations of human rights abuses. Naturally, the Chinese were upset at the obvious insinuations of discrimination and shot back, calling for boycotts of popular retailers.
Well, one of the firms caught in the crossfire was Nike. Frankly, it was caught between a rock and a hard place. Forced labor and bigotry are hot-button issues in the U.S. that cannot go unaddressed. But demanding change from one of your biggest markets is also a financial no-no.
Logically, affected companies are hoping that another controversy won’t spark. Normalized relations would go a long way, enough so to make NKE one of the stocks to buy.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.