3 Stocks Set to Benefit from U.S.-China Trade Tensions

While long-simmering trade tensions between the U.S. and China have left some investors on pins and needles, there are plenty of opportunities for investors to capitalize. Most recently, Societe Generale's head U.S. equity strategist Manish Kabra identified a few key stocks poised to benefit from the “reshoring” trend, where companies bring their overseas operations back home. 

With both U.S. presidential candidates backing policies to incentivize domestic manufacturing, Kabra explained, “One trade that has worked under both of the last two administrations is our US Reshoring ‘beneficiary’ equities. This trade should continue to perform at least until the share of China imports comes down substantially, we believe.”

Among the names on Kabra's list, Union Pacific (UNP), Honeywell International (HON), and Martin Marietta Materials (MLM) have strategic importance in sectors critical to reshoring efforts, including transportation, industrial technology, and construction materials. Plus, all three stocks have consensus “Buy” ratings on Wall Street, with upside to keep rising to their mean price targets. Here's a closer look at the prospects for each stock.

#1. Union Pacific

Based in Omaha, Union Pacific (UNP) operates one of the largest freight railroad networks in the United States, with over 32,000 miles of track across 23 states, facilitating the movement of goods ranging from agricultural products to industrial machinery. The company boasts a hefty market cap of $150.38 billion.

Up 21% over the last 52 weeks, Union Pacific shares are nearly flat on a year-to-date basis.

From a valuation perspective, UNP trades at 22.13 times forward earnings, roughly in line with both the sector median and its own 5-year historical average. This suggests that the railroad stock is reasonably valued at current levels.

Union Pacific also pays dividends to its shareholders. Its annualized dividend payout is $5.36 per share, which amounts to a healthy yield of 2.17%. UNP has increased dividends on its common stock for 17 consecutive years.

In July, the company reported its Q2 earnings results, which topped estimates on the bottom line but missed on revenue. While revenue came in at $6 billion, nearly unchanged year over year, earnings per share (EPS) of $2.74 edged past estimates by 1.5%. 

UNP closed the second quarter with $1.13 billion in cash and equivalents, as free cash flow rose to $853 million during the first six months of this year, up from $596 million in the first half of 2023. 

Looking ahead, analysts expect Union Pacific to report a GAAP profit of $11.10 this fiscal year, up 6%, while revenue is projected to rise just over 1% to $24.3 billion. Similarly, Union Pacific management expects its EPS to grow at a compound annual growth rate (CAGR) of 7% to 12%, with capital expenditures projected to range between $3.5 billion and $3.7 billion annually over the next three years.

The consensus rating on UNP stock is a "moderate buy". Based on 23 analysts in coverage, 13 recommend a "strong buy," 1 assigns a "moderate buy," and 9 suggest a "hold" rating. 

The average price target for UNP is $263.12, which represents a 7.1% upside potential.

#2. Honeywell International

Based in Charlotte, Honeywell International (HON) is a leading global diversified technology and manufacturing conglomerate. The company has a strong foothold in the aerospace industry, providing advanced technologies such as avionics, engines, and navigation systems for commercial, defense, and space aircraft. With a substantial market cap of $134.6 billion, Honeywell is widely recognized for its commitment to long-term growth through strategic acquisitions, research, and global expansion.

Over the past 52 weeks, shares of HON have gained about 11.5%, and the shares are down 1.8% on a YTD basis.

Currently, HON shares are trading at 20.46 times forward earnings, right in line with the sector median. 

Honeywell International also has a strong track record of dividend growth. Last Friday, the company hiked its dividend by 4.6% to $1.13, which translates to a yield of 2.19%.

In its latest quarterly earnings, Honeywell exceeded consensus revenue estimates by $160 million, reporting $9.5 billion. Out of this, $3.8 billion came from the aerospace segment, where sales increased by 16% year over year. 

Adjusted EBITDA rose to $2.27 billion from $2.1 billion, reflecting the company's operational efficiency and profitability. Honeywell surpassed estimates by reporting earnings of $2.49 per share, up 6% from the same quarter last year. 

Despite exceeding Wall Street's expectations in Q2, shares dipped by 4% following the earnings release as Honeywell issued lower full-year guidance. CFO Greg Lewis noted that the company's short-cycle businesses are not accelerating as hoped.

Honeywell had a productive second quarter for acquisitions, closing a $4.95 billion deal for Carrier's (CARR) Global Access Solutions to strengthen its building automation and security portfolio. Additionally, the company announced plans to acquire CAES Systems Holdings and Air Products' (APD) LNG business, broadening its footprint in the defense and energy sectors. These strategic moves position Honeywell for accelerated growth and market leadership.

Looking ahead, analysts project that EPS will reach $10.11 for the fiscal year, marking 10.4% year-over-year growth, while revenue is expected to grow 6.7% to $39 billion.

Overall, Wall Street has a consensus rating of "moderate buy." Among 20 analysts covering HON stock, 12 rate it as a "strong buy" and 8 as a "hold."

The average 12-month price target of $227.16 implies an expected 10.2% upside potential from current levels.

#3. Martin Marietta Materials

Based in Raleigh, North Carolina, Martin Marietta Materials (MLM) is a leading supplier of aggregates and heavy building materials domestically. It provides natural resource-based building materials, including aggregates, cement, concrete, and asphalt, to private residential, railroad, and agricultural customers. In addition to its core aggregates business, Martin Marietta also produces and sells a range of magnesia-based products, including heat-resistant materials used in steelmaking, chemical products serving both industrial and environmental applications, and dolomitic lime.

Valued at a market cap of $33.17 billion, shares of the materials company have risen 30.3% over the past 52 weeks, and 7.2% on a YTD basis.

In terms of valuation, MLM shares trade at around 27.8x forward earnings - higher than the sector median, but in line with the company's own 5-year average. MLM also offers a modest dividend yield of 0.59%, based on its annualized dividend of $3.16 per share. 

MLM reported its Q2 earnings on Aug. 8, which fell short of analysts' expectations. Net sales reached $1.76 billion, a 3% dip from last year, while EPS fell 15% to $4.76. This decline was linked to weather-related challenges and softening demand in specific construction sectors.

This year, MLM made significant acquisitions, including the purchase of 20 active aggregate sites from BWI Southeast affiliates for $2.05 billion. The sites are located across crucial growth regions like Alabama, South Carolina, South Florida, Tennessee, and Virginia, strengthening MLM's presence in booming markets such as Nashville and Miami, which is in line with its long-term strategic objectives.

Earlier in the year, the company also acquired Albert Frei & Sons, a Colorado-based aggregates producer. This deal helped Martin Marietta strengthen its platform in the Denver metropolitan area, adding valuable hard rock reserves and further supporting its SOAR 2025 aggregates-led growth strategy. These acquisitions are expected to contribute positively in the long term. However, the short-term impacts were a decline in both gross and net profits, influenced by higher acquisition-related expenses and purchase accounting impacts.

For fiscal year 2024, MLM management expects revenue between $6.5 billion and $6.9 billion, with adjusted EBITDA expected at $2.2 billion, at the midpoint. Analysts are targeting full-year EPS of $19.33, nearly flat with 2023 levels.

Analysts have assigned a consensus “moderate buy" rating for MLM stock. The average 12-month price target of $625.03 implies an expected 16.8% upside.

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