Wall Street and global stocks declined sharply in May after trade negotiations between the United States and China broke down suddenly after Beijing stepped back on issues they had already agreed on. Concerns about a prolonged trade dispute forced the Federal Reserve to adopt a more lenient approach towards monetary policy — a move that helped stocks stage a massive relief rally in the first week of June.

But don’t let the latest rally fool you. An escalating trade war between the two largest superpowers poses a significant threat to global economic growth and the performance of equity markets.

Against this backdrop, investors have been forced to adjust their risk/reward profiles to safeguard against the emerging threat. Three technology companies that are among the least likely to be impacted by U.S.-China hostilities are Cisco Systems Inc. (NASDAQ: CSCO), Cogen Communications Holdings Inc. (NASDAQ: CCOI), and Veeva Systems (NYSE: VEEV).

 

Cisco Systems

  • Market Cap: $239.4 billion
  • Annual Revenue Growth: 2.8% (July 2018)
  • Free Cash Flow: $12.832 billion

Cisco Systems is the only Dow blue chip on this list. The global leader in information technology, networking, and cyber security has managed to outperform analysts’ earnings expectations in each of the last four quarters, a trend that is likely to continue as demand for collaboration software and cyber security continues to grow.

Despite having a massive global footprint, Cisco only generates about 3% of its sales from China.

Despite having a massive global footprint, Cisco only generates about 3% of its sales from China. A trade war, no matter how long, would likely only have a very minor impact on the company.

Cisco’s revenues are growing again after decelerating in recent years. Its adjusted per-share earnings grew 9%. At 2.5%, the stock offers an attractive dividend yield compared with the broader technology sector average.

Cisco Share Price YTD - Jun 10 2019

Source: Yahoo Finance

Cogent Communications

  • Market Cap: $2.8 billion
  • Annual Revenue Growth: 7.2% (December 2018)
  • Free Cash Flow: $84 million

Shares of Cogent Communications are approaching record highs this year thanks to good insulation from trade war and political hostilities. The Washington, D.C.-based company provides private networking and data centre services to small- and medium-sized enterprises worldwide. Since the need for reliable communications infrastructure isn’t going away anytime soon, Cogent is likely to experience sustained growth for many years to come.

The company has grown its annual revenues each year since the financial crisis and has surpassed earnings estimates in two of the last four quarters. Its financials show a strong free cash flow position, which is a positive sign for future growth. Cogent is also a strong dividend play with a yield of 3.98%. That’s nearly four times higher than the technology sector average.

Cogent Share Price YTD - Jun 10 2019

Source: Yahoo Finance

Veeva Systems

  • Market Cap: $23.9 billion
  • Annual Revenue Growth: 25.7% (January 2019)
  • Free Cash Flow: $301 million

Veeva Systems is fast becoming a billion-dollar company. Although not there yet, the cloud service provider generated $862 million in sales last year for a gain of 25.7%. Revenues have more than doubled since 2016 and are up a staggering 2,872% since 2011. The company’s growth pace reflects its strong leadership position in the ever-expanding cloud service market. As analyst Leo Sun recently pointed out, cloud companies are now being viewed as safe havens during the trade war.

Veeva’s stock price is currently trading at record highs, having nearly doubled in value since the start of 2019. As such, VEEV is quite pricey as far as cloud companies go. Investors may want to wait for a pullback before buying.

Veeva Share Price YTD - Jun 10 2019

Source: Yahoo Finance

Conclusion

The United States and China will likely resume trade negotiations soon, but a swift resolution appears highly unlikely. By adding Cisco, Cogent Communications, and Veeva to their portfolios, investors have a better hedge against any possible spillover into the stock market.

Disclaimer: Author holds no investment position in Cisco Systems, Cogent Communications Holdings, or Veeva at the time of writing.