The week was going well before one of the key Semiconductor companies confirmed that the trade war will cost it $2 billion in revenue over the next six months. We aren't concerned but it's worth comparing their future to what our stocks have ahead.
To be fair, even the company that issued the warning, Broadcom, isn't exactly going over a cliff. While $2 billion in lost revenue from China stings, when you're still looking at bringing in $11 billion over the next six months, there's still a lot of cash coming in from the rest of the world. People are still buying computers and the silicon components that make them work. That's the business Broadcom is in.
Furthermore, if this is the sum of the pain the trade war will inflict on Broadcom, the stock has already factored in every lost dollar and more. Management has crunched every scenario and admitted that they'll probably give up $2 billion in sales that shareholders already expected. That's a 15% shortfall.
The stock is down 30%. Doing the math, Wall Street has already delivered double the punishment that the guidance cut justifies. We don't recommend Broadcom and the fact that it's taken such an outsized hit isn't a strong enough motivation to add it to our universe now, but a lot of other Technology stocks are in a similar place. If this is the extent of the pain China is inflicting on companies like Broadcom, Microsoft and Apple look better than ever.
Either way, our stocks have what it takes to weather the global winds a whole lot better than the market as a whole. We anticipate 3% earnings deterioration on the S&P 500 when 2Q19 numbers start coming out about a month from now. Adding up all of our recommendations where year-over-year comparisons matter, the BMR universe is looking for 3% growth. That's not huge, but even a pulse of positive movement is enough to keep our stocks moving up, no matter what happens in China or with the other stocks in the S&P 500.
Furthermore, a lot can happen between now and the earnings cycle. We aren't counting on a rate cut from the Fed next Wednesday, but even a dovish bias to the statement is enough to transform the investment landscape. China casts a long shadow but as long as money remains easy, the global economy will remain flexible . . . and money will keep flowing across borders to our companies in particular.