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5 US Stocks With Incredibly High Revenue Exposure to China

With the juggernaut economy that has driven growth around the world for years finally slowing down, many analysts and strategists on Wall Street are predicting that economic and earnings data point to a continuing slowdown in China. A new report from Merrill Lynch stresses the fact that consensus gross domestic product growth forecasts for China have been falling for five years with no evidence of an end in sight. Plus, in a seemingly desperate move, the country devalued the currency as the People’s Bank of China allowed the yuan to depreciate almost 2% against the U.S. dollar.

In the report, the Merrill Lynch team focused on companies around the world that have an usually high revenue exposure to China. The list is dominated by the technology hardware, materials and consumers sectors. We further screened the list for the U.S. companies with among the highest revenue exposure to China. Data shows that stocks with high exposure are underperforming.

Here are the five U.S. stocks with very high exposure to China.

Wynn Resorts Ltd. (NASDAQ: WYNN) is a high-flying gaming stock that has been hit hard by issues attributed to holdings in China. The company’s largest market is the Chinese gambling enclave of Macau. Net revenues there were 36% lower, at $617 million. Last year, the Chinese government began an anti-corruption crackdown, aimed chiefly at the VIP segment of the market. This is still in effect and has seriously affected the overall gambling take in the casinos. In the first six months of this year, total revenue in the region fell by 37% year over year, according to Macau’s Gaming Inspection and Coordination.

Merrill Lynch has the stock rated Neutral and estimates that Wynn has a 69.9% revenue exposure to China. The stock closed trading on Monday at $104, down from over $200 at this time last year.

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Skyworks Solutions Inc. (NASDAQ: SWKS) has an enviable position as a very big supplier to Apple for the iPhone, as well as to Samsung. The company is an innovator of high-performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications.

Merrill Lynch is bullish on the stock and has it rated at Buy, but it reports that Skyworks has a 68.7% revenue exposure to China. Shares closed Monday at $91.03.

Marvell Technology Group Ltd. (NASDAQ: MRVL) is another technology hardware stock with big exposure to China. The company has chips in products from Samsung and Sony. It also develops data storage, Ethernet data switching and physical-layer transceivers, mobile handset, and other consumer electronics. There was some recent speculation that Marvell is considering selling control of its wireless chip business, which has attracted interest from Chinese state firms.

Merrill Lynch has the stock rated Underperform and believes the company has 59.7% revenue exposure to China. The stock closed Monday at $12.64.

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Yum! Brands Inc. (NYSE: YUM) is famous for its Taco Bell, KFC and Pizza Hut brands. While the domestic U.S. business has been very solid for the most part, especially at the Taco Bell restaurants, the company has experienced numerous issues in China. As of last summer, the company had a total of 6,387 restaurant units, or 15% of the total system restaurants in China. Most of the restaurants were KFC, which had 4,653 units. It was followed by Pizza Hut with 1,349 units.

Merrill Lynch has the stock rated Neutral and estimates that it has a 52.2% revenue exposure to China. The stock closed on Monday at $87.82.

Qualcomm Inc. (NASDAQ: QCOM) is another top technology stock that has faced a series of issues that have weighed on the stock price. We reported recently that the stock was removed from a top Wall Street firm’s portfolio. With the rumors starting to fly that the company is considering splitting in two, and some having gone further and suggested that a major chip company like Intel would have an interest in buying the Qualcomm’s QCT chip business, things could start to improve.

Merrill Lynch has the stock rated at Buy. The estimated revenue exposure to China is 49.8%. Shares ended Monday’s trading at $63.15.

The great unknown for investors is how much more downside is there to the China story. Some bearish hedge fund managers like Jim Chanos have said for years that there could be a severe meltdown in China, and we may be seeing the beginning of it now first hand.

By Lee Jackson


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