Trade tensions between the United States and China are reaching a fevered pitch. During the past month, both countries slapped a new round of trade tariffs on each other.

The stock market has taken notice. The S&P 500 Index is down 4% since President Trump announced the new trade sanctions on China.

At the same time, the CBOE Volatility Index (VIX), or “fear index”, has jumped 28%. That means a lot of smart investors are afraid a recession may ensue if a resolution is not reached soon.

That’s the bad news.

The good news is, there are some very good companies trading at very low prices as a result. Trade wars don’t last forever. When this one is over, some of those stocks are likely to snap back to their pre-trade war levels.

Here are three that I think look particularly promising.

Best Buy

Yes, consumer electronics retailer Best Buy (NYSE: BBY) sources a lot of its goods from China. For that reason, the company tempered guidance for the current quarter when it released its Q1 results last week. As a result, shares of BBY fell 5% even though Q1 GAAP diluted earnings per share (EPS) increased 24% during the quarter.

Normally, news that good would have sent BBY’s share price soaring. Eventually, it will. But until trade sanctions on China have been removed, investors are steering clear of Best Buy despite its excellent performance.

At a share price of $66, BBY is valued at 11 times forward earnings compared to a multiple of 17 for the S&P 500 Index. Also, BBY is priced at 0.4 times sales, only a quarter of the same multiple for the overall stock market.

I expect BBY to get back above $80 within three quarters (nine months) after a trade pact is reached with China. That represents a 20%+ gain from where it is now.

Eastman Chemical

Unlike Best Buy, specialty chemicals manufacturer Eastman Chemical (NYSE: EMN) doesn’t buy much from China. However, it does sell many of its plastics, resins, and other materials to China for products that are now being more heavily hit with tariffs by the U.S.

A year ago, EMN rose above $100 as China’s economy appeared to be picking up steam. But China’s gross domestic product (GDP) growth rate has fallen to its lowest level in over five years, largely due to U.S. trade sanctions and Brexit fallout in Europe. At the same time, shares of EMN have recently fallen below $70.

Eastman CEO Mark Costa did not mince words when the company released its Q1 results last month:

“We began 2019 with many of the challenges from the fourth quarter continuing in the first quarter, including reduced demand for specialty products in China and Europe resulting from trade issues, which also reduced flow through of lower-cost raw materials.”

However, Costa went on to acknowledge that the company improved its adjusted earnings before interest and taxes (EBIT) by 28% over the previous quarter. If the company can maintain that momentum until a trade war truce with China is announced, I expect EMN to rally back above $100.

BHP Group

Perhaps more so than any other industrial company, Australian natural resources produce BHP Group (NYSE: BHP) has tied its fortunes to those of China. Over the past three years, BHP divested a wide array of international mining and oil assets so it could pay down debt and focus primarily on China.

Despite the unfortunate timing, BHP’s share price has climbed 20% over the past six months. BHP’s balance sheet is stronger than ever, and its remaining assets are generating gobs of free cash flow.

So much so, BHP pays a forward annual dividend yield of 4.5%. Even then, its payout ratio remains at a respectable 71%. Once a trade deal is reached with China, I believe BHP will bump its dividend payment by as much as 10% over the ensuing 12-18 months.

That would make BHP one of the few stocks that not only pay a very high yield but would also benefit from rising inflation. For that reason, I view BHP as a viable alternative to bonds once the trade war is over and the threat of inflation again takes center stage.

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