While many Wall Street firms are looking for equities than can weather a short-term trade conflict, Bank of America has screened more stringently for a hardier group of stocks: ones that can survive a worst-case or "full-blown" trade war between the world's two economic superpowers. These high quality U.S. stocks have 0% foreign sales and relatively low sensitivity to a decline in U.S. economic growth, according to the BofA analysts.

BofA’s top picks for a long-term trade war include SVB Financial Group (SIVB), BB&T Corporation (BBT), FirstEnergy Corp. (FE), Duke Realty Corp. (DRE), Lennar Corp. (LEN), HCP Inc. (HCP), Kohl's Corp. (KSS), Boston Properties Inc. (BXP), Carmax Inc. (KMX) and Regency Centers Corp. (REG), as outlined by Business Insider.

Top Picks for Long-Term Trade Conflict

(Stock, Sector, GDP Beta)

  • SVB Financial Group (SIVB); Financials; -0.56
  • BB&T Corporation (BBT); Financials; -0.57
  • FirstEnergy Corp. (FE); Utilities; -0.62
  • Duke Realty Corp. (DRE); Real estate; -0.77
  • Lennar Corp. (LEN); Consumer Discretionary; -0.68
  • HCP Inc. (HCP); Real Estate; -0.94
  • Kohl's Corp. (KSS); Consumer Discretionary; -1.17
  • Boston Properties Inc. (BXP); Real Estate; -1.29
  • Carmax Inc. (KMX); Consumer Discretionary; -2.29
  • Regency Centers Corp. (REG); Real Estate; -1.39

Source: Bank of America Merrill Lynch, per Business Insider

The U.S.-China trade war was ramped up when President Trump said he would increase levies on $200 billion worth of Chinese imports from 10% to 25%, while Chinese officials said they would increase tariffs on $60 billion in U.S. imports to as high as 25%.

Many experts are concerned that Washington's tariffs, intended to be temporary, could end up being imposed longterm as a permanent part of American economic policy, according to the New York Times. America's trade-weighted tariff rate today of 4.2 percent is already higher than any member of the Group of 7, twice as high as Germany, France and Britain, and also higher than Russia and China, the Times says.

BofA's Trade War Picks

The bank's analysts picked domestically oriented stocks with strong fundamentals and more negative betas, which indicates a lower sensitivity to GDP changes. The list includes companies across defensive industries including real estate, consumer discretionary, financials and utilities.

Carmax, the largest used-car retailer in the U.S., has seen its stock surge nearly 22% YTD, outperforming the S&P 500’s 13.7% increase over the same period. The used-car seller posted a better-than-expected earnings report in March, generating net sales growth of 5.7% and an EPS increase of 68% YOY, per company filings.

SVB Financial, another stock on the list, has gained over 21% in 2019. The bank holding company released better-than-expected first quarter results in April, in which average loan balances grew by near 20% while and return on assets were double the industry’s benchmark, per Motley Fool.

Looking Ahead

A full-blown trade war initially was seen as unlikely, but more investors and market watchers are becoming cautious. In a recent note, Goldman analysts recommended that investors favor service-oriented companies as opposed to companies that focus on selling goods, given the former is less vulnerable to trade woes, per an earlier Investopedia story. Analysts at Goldman peg the chance of a full blown trade war, in which a 25% tariff is levied on the remaining $300 billion of imports from China that are currently not subject to tariffs, at 30%.