As China-U.S. Relations Cool, Reshoring Heats Up. Honeywell and Other Stocks That Should Benefit.

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Industrial companies like Honeywell International can get a boost by bringing operations back home.

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dream time

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The gap between the US and China is widening, which could be good news for stocks that have benefited from the resumption of industries that have migrated over the past 40 years.

If President Xi Jinping’s consolidation of power in China demonstrates anything, it is that the old model of manufacturing products in Asia and shipping them back to the US is no longer viable. Louis Vincent Gave of Gavecall Research says that while Xi places political gains over economic gains, the US is ready to support a zero-China policy.

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A zero-China world would have major consequences. Note given that Chinese companies probably won’t want to buy American products—and not just chips. If the US can stop the sale of the chip, it can stop the sale of almost anything, making it unlikely that Chinese automakers will buy Boeing (ticker: BA) 737 MAX or Caterpillar (CAT) trucks if options become available. Would like “A zero-China world is a world in which American companies will struggle to sell more in China,” writes Gave. “This is a world with weak global trade and low productivity.”

A less economically focused China could also respond to US sanctions with its own export controls. This risk is likely to be the most important but also the most difficult to measure, writes Goldman Sachs economist Jan Hetzius, as any category of Chinese exports to the US is clearly a risk factor for US exports of advanced semiconductor-related technology to China. is not comparable.” Pharmaceuticals, some auto parts, and rare earths are sectors that could be affected.

These factors make reshoring more likely—a process that has already begun. Congress passed the Inflation Reduction Act and the Chips and Science Act of 2022, which provide more than $50 billion for research, training, and manufacturing of semiconductors in the US, and major tax credits for investments in manufacturing in US global companies also provides. Announced plans to spend more than $350 billion in the US since the CHIPS Act was passed, noted Société Générale strategist Manish Kabra.

SocGen created a basket of stocks that should benefit from reshoring. It is in touch with the industries the Biden administration considers important: defense, information and communications services, semiconductors, artificial intelligence, autonomous vehicles, energy, agriculture, pharmaceuticals, renewable energy, mining and transportation.

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The basket is heavily weighted toward industrial companies such as Honeywell International (HON), United Rentals (URI), and Raytheon Technologies (RTX), but also includes Roper Technologies (ROP), real estate investment trust Prologis (PLD), and Utility Techniques such as Sempra are included. (SRE).

Human-resources company Paychex (PAYX) also made the list. As a company that handles the back end for smaller companies, it will benefit from new recruits from reshoring. Paychex doesn’t report earnings until December, but its latest report, in September, was enough for Credit Suisse analyst Kevin McVeigh to call it a “projected investment in unexpected times.”

Yet the stock has fallen 15% in 2022. Paychex has a long history of raising its dividend, only broken by its decision not to increase it in 2020. While its yield of 2.7% isn’t as attractive as it was when interest rates were. Close to zero, it is still valuable in a volatile market. He rated the stock outperform with a price target of $138, up 15% from Friday’s close.

It never hurts to get paid.

write to Ben Levishon at [email protected]

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