Since the Trump administration’s announcement of tariffs on aluminum and steel in March, many analysts have been debating the meaning of the Trump tariffs. Are they protectionist measures to help the U.S. steel and aluminum industries? Are they meant to protect the intellectual property of U.S. technology companies doing business with China? Are they a negotiating tactic to help the U.S. rewrite trade deals that President Trump has stated are imbalanced toward our country?
The answer seems to be all of the above. The good news for you as an investor is that when it comes to tariffs and trade the market assigns winners and losers pretty clearly. Just follow the money. What companies stand to profit from higher-priced foreign imports? What companies will be hurt when foreign markets become less receptive to their imports?
The final story of the tariffs is still being written, but you can use the uncertainty surrounding the tariffs as an opportunity to profit… if you know where to look.
In the following slides, we’ll review 10 stocks that are set to surge from the Trump tariffs. In some cases, the business is in a sector that will obviously benefit from a tariff imposed on foreign countries; in other cases, the companies are defensive stocks whose businesses are buffered from the trade war and are well positioned for growth.
Quick Links
- Nucor
- United States Steel Corporation
- Century Aluminum Company
- Comtech
- Verizon
- Raytheon Corporation
- Rockwell Automation
- CarMax
- Turning Point Brands, Inc.
- Global Water Resources, Inc.
#1 - Nucor (NYSE:NUE)
Nucor (NYSE: NUE) – Nucor stands to be a clear winner as manufacturers look for cheaper alternatives to imported steel. They are the largest manufacturer of steel and steel products in the United States. Not only that, but the major sectors they serve (automotive, construction, and energy) have a large need for steel that is not going to change. In their most recent earnings report, they cited a 107% increase in earnings to $2.07/share with revenue that was up 25% to $6.46 billion. By industry standards, the company saw their supply chain make up for any drop in imports with an increase in orders from domestic companies. While giving credit to the tariffs for increasing selling prices and shipments, CEO John Ferriola also cited the company’s long-term strategy geared at initiatives that left Nucor well-positioned to profit from a rebounding steel market. The company is projecting earnings to continue to show strength in the third quarter with a forecast price of $2.15 per share.
About Nucor
Nucor Corporation engages in manufacture and sale of steel and steel products. It operates in three segments: steel mills, steel products, and raw materials. The Steel Mills segment produces hot-rolled, cold-rolled, and galvanized sheet steel products; plate steel products; wide-flange beams, beam blanks, and H-piling and sheet piling structural steel products; bar steel products, such as blooms, billets, concrete reinforcing and merchant bars, and engineered special bar quality products; and engages in the steel trading and rebar distribution businesses.
Read More - Current Price
- $116.58
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 6 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $173.75 (49.0% Upside)
#2 - United States Steel Corporation (NYSE:X)
United States Steel Corporation (NYSE: X) – Another steel manufacturer that is likely to benefit from the tariffs is U.S. Steel. Like Nucor, U.S. Steel’s customer base spans the industries that are in most need of steel including appliances and industrial machinery. The company announced the restarting of the second of two blast furnaces that would result in hiring 300 workers. With steel prices up almost 38% in 2018, including more than 13% since March 1, the stock is reporting solid fundamentals with a balance sheet and earnings growth that are stronger than their peers. The company’s revenues are expected to increase by over a billion dollars with earnings per share forecast to rise over 200 percent to $4.15. However, the benefit to their stock hasn’t quite materialized. The stock is still trading at just below $30 per share, but Bank of America has given the stock a $49 price target which would be above its current 52-week high of $47.64.
About United States Steel
United States Steel Corporation produces and sells flat-rolled and tubular steel products primarily in North America and Europe. The company operates through North American Flat-Rolled (Flat-Rolled), Mini Mill, U. S. Steel Europe (USSE), and Tubular Products (Tubular) segments. The Flat-Rolled segment offers slabs, strip mill plates, sheets, and tin mill products, as well as iron ore and coke.
Read More - Current Price
- $30.14
- Consensus Rating
- Buy
- Ratings Breakdown
- 7 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $42.37 (40.6% Upside)
#3 - Century Aluminum Company (NASDAQ:CENX)
Century Aluminum Company (NASDAQ: CENX) – Another direct beneficiary of the Trump tariffs is Century Aluminum. In direct response to the relief from competitors being provided by the tariffs, CEO Michael Bless announced that the tariffs allow Century Aluminum “to bring back 150,000 tons of production in its Kentucky plant.” With that increased production, the company is looking to invest $100 million and hire 300 workers. Two-thirds of the companies $1.5 billion in sales is from their U.S. operations. In their second-quarter earnings report, the company cited strong downstream demand, particularly in the United States, and projects a year-over-year increase in industrial production of roughly 60 percent by the end of 2018. The company reported second-quarter net income of $19.4 million or $0.20 per share compared to $7.1 million or $0.07 per share in the same quarter last year. All this positive news is not reflected in their stock price, which is still trading at a discount to the rest of the industry, but is up by nearly 10 percent since the tariffs were announced.
About Century Aluminum
Century Aluminum Company, together with its subsidiaries, engages in the production of standard-grade and value-added primary aluminum products in the United States and Iceland. It also owns and operates an alumina production facility in Iceland, and a carbon anode production facility in the Netherlands.
Read More - Current Price
- $18.33
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 2 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $23.00 (25.5% Upside)
#4 - Comtech (NASDAQ:CMTL)
Comtech (NASDAQ: CMTL) – The steel and aluminum industries aren’t the only projected winners from the Trump tariffs. U.S. businesses in the communications technology sector are poised to benefit, particularly those companies that operate as defense contractors.Comtech is a good example of that. The company, which designs and develops innovative products for advanced communication solutions, reported record earnings growth of 232.4 percent for the current year, and they recently announced $32.5 million in new orders from the U.S. Army PM Tactical Network. This is on the heels of the announcement that their Enterprise Solutions group was awarded multi-year contracts totaling $19.5 million with a global telecom partner for services and applications related to its virtual short messaging service center. In its most recent earnings report, Comtech announced net sales of $147.9 million with $14 million in operating income and GAAP net income of $8.2 million or $0.34 per diluted share. The company is maintaining its revenue target of $570-$585 million.
About Comtech Telecommunications
Comtech Telecommunications Corp., together with its subsidiaries, engages in the provision of next-gen telecommunication solutions in the United States and internationally. The company's Satellite and Space Communications segment offers satellite ground station technologies, services and system integration that facilitates the transmission of voice, video, and data over GEO, MEO and LEO satellite constellations, including solid-state and traveling wave tube power amplifiers, modems, VSAT platforms, and frequency converters; and satellite communications and tracking antenna systems, including high precision full motion fixed and mobile X/Y tracking antennas, RF feeds, reflectors, and radomes.
Read More - Current Price
- $3.69
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 1 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $6.38 (72.8% Upside)
#5 - Verizon (NYSE:VZ)
Verizon (NYSE: VZ) – Sometimes being a winner in a trade war means you just aren’t playing. Such is the case for Verizon. It’s considered a defensive stock because it competes in an industry that is unlikely to be affected by tariffs. After all, demand for telecommunication networks and providers is not going down. Verizon is reporting very strong fundamentals. In June, the stock received an upgrade from Deutsche bank as investors saw the company’s shares trading at a discount to the industry as a whole. Verizon’s stock is still trading slightly below Deutsche Bank’s price target of $56, meaning there’s still room for the stock to run. Analyst Matthew Niknam saw the fundamentals for the wireless industry to be improving after a wave of consolidations including the recent merger of T-Mobile and Sprint. Verizon also recently announced a transition to a 5G network that will provide new avenues for growth including direct-to-home wireless internet.
About Verizon Communications
Verizon Communications Inc, through its subsidiaries, engages in the provision of communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. It operates in two segments, Verizon Consumer Group (Consumer) and Verizon Business Group (Business).
Read More - Current Price
- $39.93
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $46.51 (16.5% Upside)
#6 - Raytheon Corporation (NYSE:RTX)
Raytheon Corporation (NYSE: RTN) – Raytheon was already a beneficiary of the "Trump Effect" –the surge in stocks after President Trump's election in 2016. The stock of the multinational aerospace and defense contractor rose nearly 46 percent since the election and after a brief contraction looks poised to rise again. This time, the company should benefit from the Trump tariffs. The company is well-positioned to withstand the tariffs. According to CEO Tom Kennedy, the company does not import from China and they are already purchasing the bulk of their steel and aluminum purchases from American manufacturers, meaning they will not be facing the same cost pressures as competitors. Internationally, many American allies are increasing their investment in defense spending to meet new NATO requirements. This has caused the company’s revenue from international sales to increase to nearly 32 percent and continues to trend up. First-quarter net sales were up 4.5% from the same period in 2017 at $6.3 billion with an earnings per share of $2.20, a year-over-year increase of over 27 percent.
About RTX
RTX Corporation, an aerospace and defense company, provides systems and services for the commercial, military, and government customers in the United States and internationally. It operates through three segments: Collins Aerospace, Pratt & Whitney, and Raytheon. The Collins Aerospace Systems segment offers aerospace and defense products, and aftermarket service solutions for civil and military aircraft manufacturers and commercial airlines, as well as regional, business, and general aviation, defense, and commercial space operations.
Read More - Current Price
- $116.48
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $177.93 (52.8% Upside)
#7 - Rockwell Automation (NYSE:ROK)
Rockwell Automation (NYSE: ROK) – One of the effects of the tariffs is that U.S. businesses seeking to do business overseas will instead turn to automation as a way of reducing their costs. And the countries that are facing the increased costs due to the tariffs will also be looking to automation as a way to bring their costs down. This is causing a trend toward more spending in this sector to accelerate. And as the largest producer of the robots and automation equipment, Rockwell is poised to be one of the big winners from the tariffs. This leadership is also evident in its stock which has outperformed the industry over the past year. Rockwell’s stock has gained 5 percent, outpacing the industry as a whole by 3 percent, and they have an inventory turnover ratio that is 0.1 percent higher than the industry average (6.7% to 6.6%). Although Rockwell does source some products and components from China, the entire sector will face the same issue, meaning the overall forecast for the company remains positive.
About Rockwell Automation
Rockwell Automation, Inc provides industrial automation and digital transformation solutions in North America, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. The company operates through three segments, Intelligent Devices, Software & Control, and Lifecycle Services. Its solutions include hardware and software products and services.
Read More - Current Price
- $289.79
- Consensus Rating
- Hold
- Ratings Breakdown
- 9 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $301.17 (3.9% Upside)
#8 - CarMax (NYSE:KMX)
CarMax (NYSE: KMX) – If you're looking for a short-term play, CarMax is an ideal choice. As the tariffs set in, automakers are going to be passing on higher manufacturing costs to their customers. This may incent consumers who were thinking of buying a new car to shop for a used one instead. Enter CarMax, the largest retailer of used cars. And an interesting phenomenon is that the company’s biggest growth came in units sold wholesale to other dealers. This means consumers are trading in their cars at a CarMax store which then sells that car wholesale to other dealers. In their June earnings report, the company showed increased earnings of 18 percent that calculates to $1.33 a share. Revenue also surprised, coming in at $4.79 billion as opposed to estimates of $4.63 billion. The stellar report boosted their stock 12.9 percent. Going forward, the company has aggressive plans to open 15 new superstores in what the company is defining as small markets.
About CarMax
CarMax, Inc, through its subsidiaries, operates as a retailer of used vehicles and related products in the United States. It operates in two segments: CarMax Sales Operations and CarMax Auto Finance. The CarMax Sales Operations segment offers customers a range of makes and models of used vehicles, including domestic, imported, and luxury vehicles, as well as hybrid and electric vehicles; used vehicle auctions; extended protection plans to customers at the time of sale; and reconditioning and vehicle repair services.
Read More - Current Price
- $84.27
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 5 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $85.17 (1.1% Upside)
#9 - Turning Point Brands, Inc. (NYSE:TPB)
Turning Point Brands, Inc. (NYSE: TPB) – Think of TPB as the little engine that can. It is a $600 million small-cap stock that you may never have heard of. However, it makes its money through the sale of some of our country's most recognizable chewing tobacco and rolling paper brands. Because they derive much of their business from the U.S. market, their stock is largely protected from international disputes, which is what a tariff ultimately boils down to. Although they are a loud voice against the Trump tariffs as it relates to their vaping business, Turning Point Brands is benefiting because of its primary role as a defensive stock in the tobacco industry. The company has an expected earnings growth rate of 50 percent which shatters the industry average of 10.7 percent. Year-to-date the stock price is up 47.6 percent for the year, in contrast with the industry average of -21.9
About Turning Point Brands
Turning Point Brands, Inc, together with its subsidiaries, manufactures, markets, and distributes branded consumer products. The company operates through three segments: Zig-Zag Products, Stoker's Products, and Creative Distribution Solutions. Zig-Zag Products segment markets and distributes rolling papers, tubes, finished cigars, make-your-own cigar wraps, and related products, as well as lighters and other accessories under the Zig-Zag brand.
Read More - Current Price
- $59.14
- Consensus Rating
- Buy
- Ratings Breakdown
- 5 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $68.75 (16.2% Upside)
#10 - Global Water Resources, Inc. (NASDAQ:GWRS)
Global Water Resources, Inc. (NASDAQ: GWRS) – Another play in the small-cap sector is GWRS. In addition to being shielded from the tariff dispute, utility stocks are always a strong defense against market uncertainty. Global Water Resources has a strong earnings growth of 41.7 percent compared to the industry average of 13.9 percent. And for 2018, the stock price has increased 2.9 percent whereas the industry average is -13.5 Earlier this month, the company beat their quarterly earnings estimate by $0.05 a share ($0.11 vs. $0.06). The company also posted $10.84 million in revenues, beating analysts’ estimates by nearly 25%. This makes it four straight quarters that the company has beaten consensus revenue estimates. In July, the company announced that they have made underwritten public offering of 1,720,000 shares of common stock valued at $9.25 per share. The company anticipates using the net proceeds to fund acquisitions and to provide working capital.
About Global Water Resources
Global Water Resources, Inc, a water resource management company, owns, operates, and manages regulated water, wastewater, and recycled water systems primarily in metropolitan Phoenix and Tucson, Arizona. It serves approximately 82,000 people in approximately 32,000 homes. The company was founded in 2003 and is based in Phoenix, Arizona.
- Current Price
- $11.69
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
As an investor, the Trump tariffs are an opportunity for you to witness the way markets move. The Trump tariffs are one of the single largest stories impacting the market today, and the story is still being written.
A tariff always creates winners and losers because ultimately it causes costs to be shifted. For example, although the steel industry looks to benefit, the cost of items made from steel such as automobiles and washing machines are going to increase. This cost is going to be passed along to consumers.
But tariffs can also help promote efficiencies. U.S. manufacturers who are facing tariffs against their products being sold overseas will be looking for ways to automate their processes to better compete. This may result in the unintended consequence of lost jobs in some sectors just as other sectors are growing.
As an investor, you should be looking at the companies that are poised to directly benefit from the tariffs as well as look to add some defensive stocks that are protected from the uncertainty surrounding the tariffs.
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