Companies (and Stocks) That Actually Benefit from Tariffs

On June 1, the United States imposed tariffs on steel and aluminum imports from Canada, Mexico, and the European Union.

Canada retaliated against the 25 percent tariff on steel and the 10 percent tariff on aluminum by imposing similar tariffs on steel and aluminum it imports from the U.S., and imposing tariffs on several American consumer goods, including candles, kitchenware, toilet paper, and whiskey. Mexico retaliated with 15 to 25 percent tariffs on several U.S. goods, including apples, cheese, pork and potatoes. The European Union struck back with 25 percent tariffs on several U.S. goods, including Harley-Davidson Inc. motorcycles and Levi Strauss & Co. jeans.

On July 6, the U.S. imposed a 25 percent tariff on Chinese goods that are worth $34 billion, and China retaliated by imposing a similar tariff on more than 500 U.S. goods that are worth $34 billion. A few days later, U.S. President Donald Trump began preparing for yet more tariffs when he asked the U.S. trade representative to formulate a list of Chinese goods worth $200 billion that could soon be subject to 10 percent tariffs.

Trump has said repeatedly during his presidency, and during his long business career in fact, that tariffs are necessary to protect American industries, companies and employees’ jobs from other nations’ unfair trade practices. Basically, he has said that tariffs against imports will make American products less expensive than foreign products and, thus, increase American companies’ sales and profits.

Tariffs, however, haven’t been effective historically. Earlier this year, Wealth Authority concluded that tariffs have often cost hundreds of thousands of American workers their jobs, have harmed American consumers by raising prices, and have spurred trade wars that reduced American companies’ exports and profits.

Economists have also been pessimistic that Trump’s 2018 plan for tariffs will work. A Reuters survey of 60 economists concluded that the overwhelming percentage of economists believe that tariffs will harm the American economy.

You might be an investor, though, who is not only interested in the overall impact of Trump’s tariffs plan, but is also interested in whether there are companies that will benefit from the tariffs. In other words, you might be interested in investing in companies that will increase their sales, revenues, and profits because of the tariffs on products from Canada, Mexico, the European Union, and China.

Wealth Authority has researched this issue. It found that:

* Economists expect that American companies in the steel and aluminum industries will benefit from the tariffs, although companies that use steel and aluminum will be harmed because they will have to pay higher prices. On the day before the steel and aluminum tariffs went into effect, May 31, the price of a share of U.S. Steel stock rose while the price of a share of stock in 29 of the 30 companies in the Dow 30 declined.

* Moody’s Investors Service changed its outlook for the U.S. steel industry on May 31 because of Trump’s tariff plan from “stable” to “positive.”

* Investors should explore the stocks of foreign companies that produce goods that are the subject of tariffs by Canada, Mexico, the European Union, and China. In other words, a foreign company that sells motorcycles or jeans is apt to make more sales because of China’s tariffs on these products. That’s why Harley-Davidson is moving some of its manufacturing from the U.S.

Investment analysts are scrutinizing the sales and assets of companies to ascertain which companies are less dependent on the nations that are in a “trade war” with the U.S.

Two key statistics are percentage of assets in the U.S. and percent of revenue coming from Canada, Mexico, the European Union, and China. During a trade war, companies with a higher figure for the first statistic and a lower figure for the second statistic have a competitive advantage.

A chart in this CNBC article shows six companies with a domestic asset share greater than 67 percent that earn less than 10 percent of their revenue from China. They are:

* Arris
* Illumina
* L3 Technologies
* Raytheon
* Rockwell Automation
* Teledyne

L3 and Rockwell are also listed in this article in Barron’s magazine as “7 Stocks That Could Benefit From a China Trade War.” The other five are lighting equipment company Acuity Brands, satellite company Harris, electrical equipment company Hubbell, aerospace and defense company KLX, and conglomerate Roper Technologies.

Zacks Equity Research lists “5 Top-Ranked U.S. Stocks to Gain From Trump’s China Tariffs” in this article. All five companies are a “Strong Buy” with “strong growth potential.” They are:

* Cabot Corp.
* Comtech Telecommunications Corp.
* Curtiss-Wright Corp.
* Mellanox Technologies Ltd.
* Stepan Co.

“Companies producing industrial robots, communication satellites, aviation and a slew of semiconductors will be the major beneficiaries,” the article says. “Additionally, producers of wireless equipment, medicine and intermediate goods like machinery and chemicals will also gain from the move (tariffs).”

Zacks also analyzed which steel companies could be “winners” from Trump’s tariffs plan in this article. The most likely winners are U.S. companies that focus on domestic sales and, thus, are not subject to tariffs imposed by foreign nations and foreign companies that don’t sell their products to any of the nations involved in the trade war.

Zacks identifies Schnitzer Steel as a domestically-oriented company to watch for and Arcelor Mittal as a foreign company that has little reliance on the U.S. Both companies have a “Strong Buy” rating.

Investing in an aluminum company that is focused on domestic sales could also be a wise move, reports Investopedia, which identifies Century Aluminum Co., United States Steel Corp., and Nucor Corp. as “stocks winning due to import tariffs” in this article.

“A tariff on the imports of the two key metals will enable a level playing field for the domestic U.S. producers and their low-cost foreign competitors,” the article says. “The higher import tariffs will allow the domestic steel and aluminum manufacturers to demand higher prices, making them a clear winner in the long run with higher revenues and increased earnings.”

Regards,

Ethan Warrick
Editor
Wealth Authority


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