With Donald Trump set to reenter the White House in January, we’re expecting lots of tough talk and possible tough action aimed at China if his rhetoric is any indication. That’s sure to result in increased volatility for the companies in our portfolio exposed to China, the world’s second-largest economy. Fortunately, as long-term investors, we have the luxury of viewing volatility as a buying opportunity. But that only works if the tough talk weighs more on the stock prices than it does on the actual businesses those stocks represent. So, the question now is: What does an escalation of China tensions mean for the businesses we own that depend on China? Specifically, we’re thinking about the implications for Club chipmakers Advanced Micro Devices and Nvidia ; health-related stocks GE Healthcare and Danaher ; and consumer-dependent Starbucks and Apple . Jim Cramer set the table during last Thursday’s November Monthly Meeting . Chip stocks Nvidia and AMD both sell chips into China, however, not to the level they did prior to the administration of President Joe Biden implementing export restrictions on the most advanced semiconductors manufactured by these two companies. The government rules are aimed at preventing these American-designed artificial intelligence chips from being reappropriated for use by the Chinese military. NVDA YTD mountain Nvidia YTD Despite the China risk, the market is sticking by Nvidia, the company founded and led by Jensen Huang, who Jim Cramer has over the years called a modern-day Leonardo da Vinci. That has not been the case for AMD and its highly regarded CEO Lisa Su. Perhaps it’s because we know Nvidia’s current China exposure, which represents what’s at risk should chip restrictions or other China measures increase, is relatively small. Nvidia is seeing so much demand outside of China that it can likely just reallocate that supply to a new buyer outside of China if need be. AMD YTD mountain Advanced Micro Devices YTD AMD’s exposure on the other hand, is a bit less understood, both in terms of how much it sells into China and in terms of whether there are buyers ready to soak up any additional supply should things in China get dicier. AMD also just did a round of layoffs, so investors may also be concerned that recent acquisitions have resulted in too much overhead and are deciding to steer clear until Su can reduce headcount to the point of achieving optimal efficiency. We wouldn’t give up on either — but of the two, Nvidia does appear to be better positioned as it relates to the risk of increased tensions with China. We will look for more clarity on China exposure when Nvidia reports earnings next week — after Wednesday’s closing bell. Health-related stocks Danaher and GE Healthcare also have China problems as the slow rollout of Chinese economic stimulus money has led to a delay in orders from what was once a key growth end market for both companies. We do expect orders to rebound in 2025, however, the timing is uncertain and Trump’s election win does put something of a cap on the upside until we get a better sense as to how he goes about what he views as unfair trade practices between the world’s two largest economies. Consumer-dependent stocks Apple and Starbucks may be the most at risk given they are more discretionary versus the aforementioned names. After all, China has its own smartphone and coffee players that the Chinese government looks to prop up. Nonetheless, we’re sticking by both. For Apple, we have to keep in mind that CEO Tim Cook has navigated China under a Trump presidency once before and did so magnificently. Moreover, Trump probably doesn’t want to deal too big a blow to Apple given it’s an American crown jewel, and its monstrous market cap means it has a great deal of influence on the stock market. We know from his first term that Trump likes to use the market as a means of grading himself. That same argument could be used for Nvidia, which regained the crown of the most valuable U.S. company from Apple on Election Day and has not looked back. At the Club, Jim has bestowed his “own it, don’t trade it” designation on only those two stocks, Apple and Nvidia. AAPL YTD mountain Apple YTD Furthermore, while China growth may be tempered, Apple is aggressively looking to grow its presence in India — both on the consumer side and product manufacturing side of its business. In April, Bloomberg reported that 14% of iPhones are being made in India. As relations between China and the U.S. have deteriorated over the years, Apple has been diversifying its supply chain again from China — not only to India but also Vietnam. India isn’t a big enough consumer market just yet to offset a serious blow to Apple’s Chinese operations, but the opportunity to sell iPhones, Macs and other devices is massive when you consider the population of India, its GDP growth above China’s rate, and its growing middle class . We’re standing by our “own it, don’t trade it” mantra — the iPhone is still one of the world’s most popular products, and it just keeps getting better and better. That said, we fully expect increased volatility under another Trump presidency and wouldn’t fault anyone for reducing their exposure. SBUX YTD mountain Starbucks YTD As for Starbucks, we’re a bit less concerned and believe new CEO Brian Niccol has some pretty good options to ensure further growth in China. He can get creative with the stores to make them a must-go- to destination, or perhaps even look to spin off the Chinese operations, not unlike what we saw Yum Brands do with Yum China . Niccol spent time in the executive ranks of Yum Brands and its Pizza Hut and Taco Bell brands before joining Chipotle in 2018. He had a successful, six-year run at Chipotle before leaving to join Starbucks back in September. Bottom line The risks for companies that do business in China have certainly increased following Trump’s presidential election win. But remember, we have been here before . Trump’s rhetoric may induce volatility, but he also doesn’t want to harm American companies, especially those in direct competition with Chinese players. During his first term, investors were rewarded more often for buying Trump-induced selloffs than they were bailing on the names he called out. We think that will be the case this time as well. It’s always good to consider, understand, and monitor any kind of geopolitical risk, but we’re not ready to give up on great companies with strong management teams just because we might see increased tensions between two countries that, at the end of the day, very much need one another. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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President Donald Trump meets with China’s President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, June 29, 2019.
Kevin Lemarque | Reuters
With Donald Trump set to reenter the White House in January, we’re expecting lots of tough talk and possible tough action aimed at China if his rhetoric is any indication. That’s sure to result in increased volatility for the companies in our portfolio exposed to China, the world’s second-largest economy.