In this article, we discuss 5 American stocks that will benefit from China’s economic slowdown. If you want to see more stocks that are positioned to be beneficiaries of the Chinese economic slump, click 10 American Stocks That Will Benefit from China’s Economic Slowdown.
5. O’Reilly Automotive, Inc. (NASDAQ:ORLY)
Number of Hedge Fund Holders: 48
O’Reilly Automotive, Inc. (NASDAQ:ORLY) is a supplier of automotive aftermarket parts, tools, supplies, equipment, and related accessories in the United States. For FY22, the company expects revenue to be between $14.0 billion and $14.30 billion, in line with Street revenue estimates of $14.30 billion. Demand for US auto part manufacturers will increase once exports from China decrease on the back of an economic slowdown and supply bottlenecks, benefiting the likes of O’Reilly Automotive, Inc. (NASDAQ:ORLY).
On July 29, MKM Partners analyst David Bellinger raised the price target on O’Reilly Automotive, Inc. (NASDAQ:ORLY) to $770 from $700 and reaffirmed a Buy rating on the shares after its Q2 results and guidance. The analyst reduced his FY22 EPS estimate to $31.84 from $33.05 and FY23 estimate to $34.90 from $36.09, citing soft outlook in DIY trends, but he continues to see a “relatively solid” demand pattern for the aftermarket auto parts space with or without more price inflation.
According to Insider Monkey’s data, 48 hedge funds were long O’Reilly Automotive, Inc. (NASDAQ:ORLY) at the end of March 2022, with collective stakes worth $2.6 billion, compared to 50 funds the previous quarter worth $27.3 billion. Charles Akre’s Akre Capital Management is the leading stakeholder of the company, with 1.5 million shares worth $1 billion.
4. General Electric Company (NYSE:GE)
Number of Hedge Fund Holders: 51
General Electric Company (NYSE:GE) is an American industrial company operating in Europe, China, Asia, the Americas, the Middle East, and Africa via Power, Renewable Energy, Aviation, and Healthcare segments. As China is one of the leading exporters of industrial machinery, demand for General Electric Company (NYSE:GE)’s hi-tech equipment and machines will increase once China fails to meet supply deadlines amid a slowdown. General Electric Company (NYSE:GE) exceeded Q2 2022 EPS and revenue estimates.
Deutsche Bank analyst Nicole DeBlase on July 27 maintained a Buy recommendation on General Electric Company (NYSE:GE) but lowered the firm’s price target on the shares to $88 from $90. The analyst said he was a “bit surprised” that the stock traded up in light of the Q2 earnings report, as she expected Wall Street to focus more on the 2022/2023 free cash flow guidance cut rather than the stronger than predicted Q2 results.
According to Insider Monkey’s data, 51 hedge funds were bullish on General Electric Company (NYSE:GE) at the conclusion of Q1 2022, compared to 57 funds in the last quarter. Boykin Curry’s Eagle Capital Management is the biggest stakeholder of the company, with 13.3 million shares worth $1.2 billion.
Here is what Vulcan Value Partners has to say about General Electric Company (NYSE:GE) in its Q3 2021 investor letter:
“During the quarter, we sold our positions in General Electric Co. General Electric is a company we followed for a long time. In the past, we removed GE from the MVP list due to management’s poor capital allocation decisions which resulted in value instability. Larry Culp, the former CEO of Danaher, became CEO of General Electric in 2018. The company implemented a vast restructuring program to simplify the industrial side of its business, sold off non-core assets, paid down debt with the proceeds, and drastically shrunk GE Capital. These restructuring activities allowed its world-class jet engine and healthcare businesses to shine through, and improved value stability. As a result, we added the company back to the MVP list. While the pandemic negatively impacted General Electric’s aviation business in the short run, it also gave us the opportunity to buy General Electric in the second quarter of 2020 with a substantial margin of safety. GE is a good example of a competitively entrenched, yet slower growing MVP business. As its stock price rose rapidly over the last year, its value growth did not keep up, and the price to value gap closed quickly. As our margin of safety diminished, we sold our position in GE and allocated it to more discounted companies.”
3. RH (NYSE:RH)
Number of Hedge Fund Holders: 63
RH (NYSE:RH) is a California-based retailer of furniture and home furnishings. As China’s economy is crippled with slowing growth and supply chain challenges, demand for American retailers like RH (NYSE:RH) will be on the rise as Chinese exports to the US decline. Citi analyst Steven Zaccone said on July 1 that core investor concerns after RH (NYSE:RH)’s second guidance revision in a month are weakening business and execution risk on its strategic plans. The analyst shared the investors’ short-term concerns, but believes “a lot of damage is already priced in”. He noted that RH (NYSE:RH) now trades at nine-times his slashed fiscal 2023 earnings estimates, which he views “as the most extreme bear case” earnings case. The stock’s risk/reward “skews to significantly more upside than downside at current valuation”, said the analyst, while keeping a Buy rating on RH (NYSE:RH) with a $338 price target.
Among the hedge funds tracked by Insider Monkey, 63 funds were long RH (NYSE:RH) at the end of Q1 2022, up from 58 funds in the last quarter. Warren Buffett’s Berkshire Hathaway is the leading stakeholder of the company, with 2.17 million shares worth $707.6 million.
Here is what Polen US SMID Company Growth Fund has to say about RH (NYSE:RH) in its Q1 2022 investor letter:
“RH is a furniture store company with brand recognition and a unique business model. The company’s stock price fell sharply over the first three months of 2022 despite solid operating results, which resulted in what we believed to be an attractive opportunity to add to our position in the company. We are mindful that, on the margin, the company is certainly experiencing some early impact from record inflation and rising interest rates, and we feel comfortable in both the management team’s ability to navigate these challenges and the power of the company’s brand and its long-term potential.”
2. Deere & Company (NYSE:DE)
Number of Hedge Fund Holders: 66
Deere & Company (NYSE:DE) is an Illinois-based manufacturer of agricultural equipment, operating through Production and Precision Agriculture, Small Agriculture and Turf, Construction and Forestry, and Financial Services segments. Oppenheimer analyst Kristen Owen on July 18 reiterated an Outperform rating on Deere & Company (NYSE:DE) and lowered the firm’s price target on the stock to $365 from $419 as she revised her valuation for peak earnings. The analyst expects 2023 to represent another year of volume growth, with high-single digit pricing tailwinds and better margins as various costs improve. However, supply chain constraints persist, she told investors.
Among the hedge funds tracked by Insider Monkey, 66 funds were bullish on Deere & Company (NYSE:DE) at the end of Q1 2022, up from 61 funds in the prior quarter. Jean-Marie Eveillard’s First Eagle Investment Management is one of the leading stakeholders of the company, with 984,517 shares worth $409 million.
Here is what Harding Loevner Global Equity Fund has to say about Deere & Company (NYSE:DE) in its Q1 2022 investor letter:
“John Deere’s (NYSE:DE) newest tractor, the 8R, can operate autonomously 24 hours a day, controlled by the farmer via mobile app, with full data download of crop specifications and field analysis available via the cloud. Another example of how automation is reaching deeply into traditional manufactured products is John Deere. After 185 years in business, the iconic farming equipment maker has turned the tractor into a platform for software and service revenues. Deere’s newest model, the 8R, can operate autonomously 24 hours a day, controlled by the farmer via mobile app, with full data download of crop specifications and field analysis available via the cloud.
Revenue comes from both the initial capital outlay and monthly subscription fees. During a recent call, Deere’s CEO John May emphasized a point we hear increasingly from leading industrial companies: “The need for autonomy is here today. The demand for the solution is real. We already have customers paying for autonomy.” CFO Ryan Campbell went a step further, suggesting that growth in such digitization technologies will be the primary driver of Deere’s future margin improvements, by increasing the recurring revenues attached to each piece of equipment it sells.”
1. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 80
Tesla, Inc. (NASDAQ:TSLA)’s leading competitors in the EV sector are Chinese automakers NIO Inc. (NYSE:NIO), Li Auto Inc. (NASDAQ:LI), and XPeng Inc. (NYSE:XPEV). With a slowing Chinese economy, these competitors are less likely to cut into Tesla, Inc. (NASDAQ:TSLA)’s market share, which makes it one of the primary beneficiaries of the economic situation in China.
Morgan Stanley analyst Adam Jonas, in a note titled “Do Investors Appreciate the Tesla China Risks?”, argued that House Speaker Nancy Pelosi’s visit to Taiwan “casts the global battery race into a new light” and said that Tesla, Inc. (NASDAQ:TSLA) is “highly exposed to both the risk and the opportunity” from global EV battery dominance. Tesla, Inc. (NASDAQ:TSLA) has one of the highest exposures to the Chinese market, but its role in building-out U.S. and Western European renewable energy infrastructure is “under-appreciated”, observed the analyst, who reiterated an Overweight rating and an $1,150 price target on Tesla, Inc. (NASDAQ:TSLA) shares on August 3.
According to Insider Monkey’s Q1 data, 80 hedge funds were bullish on Tesla, Inc. (NASDAQ:TSLA) at the end of March 2022, compared to 91 funds in the prior quarter. Cathie Wood’s ARK Investment Management held a notable stake in the company, consisting of 1.6 million shares worth $1.7 billion.
Here is what GMO LLC has to say about Tesla, Inc. (NASDAQ:TSLA) in its Q1 2022 investor letter:
“To put the demand growth for clean energy materials into perspective, let’s look at Tesla (NASDAQ:TSLA). At its Battery Day last year, Tesla projected three terawatt hours of lithium-ion battery capacity needed in 2030 for the EVs and storage they expect to produce. To reach this target, Tesla alone would gobble up approximately 75% of the world’s current nickel production and four times the world’s current lithium production. These numbers are astounding enough, but when one considers that EVs currently represent just 15% of global nickel demand and about 45% of lithium demand and that Tesla will likely be producing only a small proportion of the world’s EVs in 2030, the implications are staggering. Clean energy materials companies will make a lot more money in the decades to come than they ever have both because they will be selling a lot more metric tons of material and because there are certain to be shortages where supply can’t keep up with the rapidly growing demand.”
You can also take a look at 10 Best Stocks For Inflation According to Redditors and 10 Dividend Stocks of All Time.
