With President Donald Trump signaling that the trade war between the U.S. and China could last well into the new year, investors can be forgiven for looking for places to hide out.
Volatility tied to the trade war is high, with the entire market moving on progress or lack thereof. Just last week, stocks took a hit after Trump told reporters during the NATO summit in London that a trade deal with China could take longer than expected -- potentially even after the 2020 U.S. presidential election.
That's an about-face from the president's previous comments and sets the stage for the possibility of $156 billion in additional tariffs on Chinese products as of Dec. 15. If that happens, it could spell trouble for companies that do business with Beijing or need parts from the country. The good news is, there are places to go to avoid the potential malaise. Adobe (NASDAQ:ADBE), Crown Castle (NYSE:CCI), and Facebook (NASDAQ:FB) operate in vastly different industries, but share one very important characteristic: They don't need China in order to thrive or survive. But that's not the only reason.
Adobe has little exposure to tariffs
The technology sector faces seemingly endless risk from the trade war with China as tariffs increase the cost to produce goods and services. But one area of tech that's largely immune is software. One company that's particularly attractive for investors looking for a safe haven is Adobe.
San Jose, California-based Adobe makes software for both professionals and consumers. Its Photoshop, Dreamweaver, and InDesign software are well-known titles among the creative community while its Creative Cloud Software is a big growth driver for the company. A recent upgrade that makes applications faster and more accessible on different devices received accolades from Wall Street, prompting several analysts to raise their price targets on the stock.
What insulates Adobe from the punishing impact of tariffs is that they don't affect its input costs or the expenses associated with producing goods or services. While it does operate internationally, its business is spread out rather than concentrated in one country like China.
If business slows in China because of the trade war, sales won't fall off a cliff for Adobe. It doesn't hurt that most of its sales -- $2.54 billion of the $2.83 billion recorded in its fiscal third quarter -- came from subscriptions, providing stability. With a large enterprise business, it won't take as much of a hit as companies playing purely to the consumer market if a recession were to emerge as a result of a trade war between the U.S. and China.
All of this hasn't been lost on investors. The stock is up 31% year to date, compared to the S&P 500, which is up 22% so far this year. But with Adobe raising its sales and earnings for next year and with little trade war risk, this safe haven may have more upside.
Crown Castle has a home advantage
Crown Castle, the cell tower company based in Houston, Texas, has a lot going for it as a safe haven as the trade fight drags on. Its operations are only in the U.S., its customers are a stable group including Verizon and AT&T, and it's riding the wave of 5G, which should bring it more business.
Sure, Crown Castle needs steel to build its cell towers, but that's only a portion of its capital expenditure budget. Of the $540 million spent in its third quarter, $120 million was attributed to towers.
It's no longer a question of when: 5G is here, and as carriers build out the networks and launch more 5G services, more cell towers will be required. Crown Castle will also be able to charge higher rates because of the power and processing required with 5G.
Then there's its appeal to income-seeking investors: Since Crown Castle operates as a real estate investment trust, it's required to distribute 90% or more of its taxable income.
This dividend is growing. The company instituted a $0.35 quarterly dividend in February 2014. Today, the quarterly dividend stands at $1.20. Meanwhile, its stock is up 23% year to date.
Facebook doesn't need China
Although the social media giant Facebook has had a host of troubles with regulators and lawmakers, it doesn't have a China problem, which means it's largely impervious to the trade war. Facebook and most of its apps are banned in the country so the company and its investors need not worry about advertisers cutting ad spending as a result.
Even without China, Facebook is still growing its userbase. For the third quarter, daily active users increased by 9% year over year.
Further, though the trade war could deter some advertising spend, it won't likely be material in comparison to Facebook's massive adverting business, which spans a broad base of customers and regions. The company generated $17.38 billion from advertisements on its platform in the third quarter alone.
With shares about 18% away from the average Wall Street price target of $235.79, there's more room for it to increase, particularly if the trade war continues.
Adobe, Crown Castle, and Facebook may not be value stocks at their current prices, but they also aren't slow growers by any means. With uncertainty looming large as we end the year, these three safe havens are a way to ride out the ongoing U.S. and China trade war.