3 Stock Picks to Benefit from New Tariffs

Well, it’s pretty clear that investors—so far—are not enamored of the tariffs that the president is enacting against imports from China, Canada, and Mexico.

Monday’s reaction stemmed from fears that the added tariffs would reduce corporate earnings and also increase prices of consumer products, as companies attempt to recoup their added costs.

In fact, Goldan Sachs Research just reported, “For the stock market, every five-percentage-point increase in the U.S. tariff rate is estimated to reduce S&P 500 earnings per share by roughly 1-2%.” And if sustained, the company estimates that if the tariffs last, they “would likely cut S&P 500 Index earnings per share by 2-3%.”

And, the report stated, “During Trump’s last presidency, the S&P 500 fell by a cumulative total of 5% on days when the US announced tariffs in 2018 and 2019, according to Goldman Sachs Research. It fell by slightly more, a total of 7%, on days when other countries announced retaliatory tariffs.”

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This chart depicts the effect on S&P 500 companies from past tariffs:

Source: Goldman Sachs

Secondly, Goldman says that the dollar could become stronger as a result of the tariffs, which could adversely affect the S&P 500 companies, who get some 28% of their revenues from outside the U.S.

And lastly, the uncertainty surrounding the tariffs will almost surely weigh on investor sentiment.

The report summed up the total effect, saying, “Taken together, the models for earnings-per-share and valuations indicate the fair value of the S&P 500 could decline 5% in near term, should sustained U.S. tariffs like those recently discussed take place.”

For another look at tariffs, a recent report from Invesco also highlighted the 2018-2019 trade war, noting, “It caused disruptions, price increases (which squeezed some businesses’ profit margins) and elevated uncertainty, which led to stalled U.S business investment and hiring.”

However, the report went on to say, “Tariffs caused short-term headwinds. Once markets grew accustomed to them and then a resolution was reached as the Phase I trade deal between the U.S. and China was announced, volatility eased, and financial markets reaccelerated.”

In summation, it sounds like tariffs are likely to impact prices and earnings and produce short-term volatility—for the next quarter or two. Hopefully, by mid-year, there will be some sort of trade-off, politically, and the upward market momentum will be less volatile.

Which Sectors Will Be the Winners and Losers?

In the meantime, life goes on, and there will likely be opportunities to snatch up attractive stocks of businesses that will benefit from the tariffs. And, of course, there will be other companies who may see a temporary disruption that you may want to avoid.

First, let’s look at the potential losers from the tariffs:

• Transporters—Shipping, trucking, and rail
• Retailers
• Consumer packaged goods, including bakery products, frozen French fries, wood and paper products, metals and metal products, furniture (from Canada), and fresh vegetables, beer, tequila, mezcal, and fresh fruits such as avocados and berries (from Mexico), and toys, furniture, home appliances, and kid’s clothes (from China)
• Technology (those companies who buy most of their materials from China).

And here are the potential winners from the tariffs:

• Oil and gas industry
• Tobacco—already protected by high tariffs
• Liquor and beer
• Cybersecurity—little tariff exposure
• Finance, due to fewer regulations
• Utilities
• Restaurants
• Steel and aluminum producers will benefit as cheaper imports will become more expensive
• Other U.S. manufacturers, who, as you can see below, have been ramping up production in the U.S.

Sources: US Census Bureau; S&P Global Market Intelligence; Haver Analytics. Data as of September 30, 2024

3 Stock Picks to Benefit from the Tariffs

These three companies may be worth a look, as the tariffs could prop up their bottom lines over the next few months.

As with all investments, please make sure that any of the above companies fit into your personal investing strategy, and be aware: the tariff effect could be temporary.

Learn from Expert Analyst Nancy Zambell

Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. As a lecturer and educator, Nancy has led seminars for individual investors at the National Association of Investors, Investment Expo and the Money Show. She has also taught finance, economics and banking at the college level, and has been quoted extensively in The Wall Street Journal, Investor’s Business Daily, USA Today, and BusinessWeek. Now let her give you the tools and resources, including a monthly magazine, for gaining the peace-of-mind to live comfortably now and in retirement in her Cabot Money Club.

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