How Amazon.com, Inc. (AMZN) Can be Hit in a Trade War
On Thursday, President Donald Trump imposed a new set of tariffs and trade restrictions on $60 billion of Chinese goods, sending the Dow Jones industrial average tumbling more than 700 points. Investors are troubled by the potential for a U.S. trade war with China, and Amazon.com, Inc. (Nasdaq: AMZN) is the one FANG stock that could see an impact.
As a whole, GBH head of technology research Daniel Ives says Amazon, Facebook ( FB), Netflix ( NFLX) and Alphabet ( GOOG, GOOGL), collectively known as FANG, should withstand a trade war with China. "We continue to strongly believe that given the primarily services nature of traditional FANG names and very internationally distributed from a revenue perspective, that Facebook, Amazon, Netflix and Google/Alphabet are primarily insulated from tariff worries and a potential retaliatory trade war with China," Ives says.
[See: Artificial Intelligence Stocks: The 10 Best AI Companies.]
While a trade war with China may not have a big impact on FANG stocks, Ives singled out Amazon as the one company that could theoretically be impacted by rising costs.
"In a draconian scenario, depending on how far the potential China/U.S. trade war goes, there could be some crosshairs that negatively impact Amazon on the e-commerce front ... although these would be negligible with a 1 to 2 percent maximum increase in costs on some items and not a concern at all," Ives says.
U.S. tariffs will specifically target technology, an area where the Trump administration says China has demonstrated abusive trade practices and stolen American companies' intellectual property. A full list of the Chinese products subject to the new tariff will be revealed in 15 days, but the list reportedly includes aeronautics, modern rail, alternative energy vehicles and high-tech products.
Commerce secretary Wilbur Ross downplayed the impact of potential Chinese retaliation. "There will be some ultimate retaliation, but I don't think it's going to be the end of the earth," Ross says.
[See: 7 of the Best Stocks to Buy for 2018.]
Fortunately for tech investors, U.S. trade officials expect China's retaliation to target American agriculture, not technology.
GBH has a "highly attractive" rating and $1,850 price target for AMZN stock.
Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.
