Back in March 2018, President Trump declared that trade wars were “easy to win”. Since then, we’ve seen a number of salvos fired across the boughs of our trading partners, primarily citing national security as the reason for trade-related action, including tariffs. There were other actions too, like blocking of Singapore-based Broadcom’s (NASDAQ: AVGO) bid to buy Qualcomm (NASDAQ: QCOM) – once again for national security reasons.
So, what can we expect over the coming months, and how might investors position their portfolios to brace for more to come?
Also Read: Stock to Own Before The End of the Year
Setting the stage
Well, more has actually come! The U.S. slapped tariffs on steel and aluminum products from Canada, China and the EU, including its G7 trading partners. Canada and China have responded in kind, with the EU set to follow through on its promise to retaliate. But it’s getting worse! China just announced it is reviewing the possibility of slapping tariffs on U.S crude oil – an export segment worth $1B a month.
To add salt to injury, such a move would not only put a dent in the earnings of major U.S oil producers – notably Chevron and ExxonMobil; but it could potentially increase Iranian crude exports to China to fill that void. And that’s something that could foster even more animosity, which could lead the world down a dark path of escalating trade tensions.
The Whitehouse has also made no secret about its options to put tariffs on other goods – including Auto and Dairy products. When we add those items to a growing list, which included aerospace and technology (primarily from China), it sends shudders down the spines of portfolio managers and DIY investors alike.
Positioning your portfolios
There are many ways to position your portfolios to either ride out or benefit from tariffs. Unfortunately, many of those approaches might not work. For instance, one way to brace yourself would be to take a history lesson from other tariff-wars, and predict the outcome of the Trump Tariff. Just buy what worked well back then, and sell what didn’t work so well – right? WRONG! Because each trade war is unique to the global environment in which it unfolds, using the “what worked and what didn’t” approach won’t work.
Okay, perhaps this time around you could analyze the specific sectors that are being targeted. You might say: Avoid Steel and Aluminum stocks…and Dairy…and Oil…and Technology…and Motorcycles…Agri producers, whiskey brewers (all of whom are targeted by US trade partners)! The list is too broad to result in a workable portfolio strategy. And what about down-stream impact: Steel and Aluminum tariffs could affect, for instance, Auto manufacturers and Homebuilders!
So, what’s an investor to do?
Well, here are two stocks to consider, and why they make great tariff-proof investments:
C.H. Robinson Worldwide, Inc. (NASDAQ: CHRW)
If a global trade war against the U.S is to erupt, you likely don’t want to be exposed to a company that has very narrow trading relationships outside of the United States. At the same time, you want exposure to a stock that will be insulated from an overdependence of export-driven revenue.
CHRW is just the company you want in your portfolio. Established in 1905, this Eden Prairie, Minnesota-based company not only has broad-based North-American connections, but it does business with over 73,000 railway carriers, shippers, truckers and airlines around the world.
One look at this stock chart, and you can tell that even through the financial crisis, CHRW continued to chug along – upwards and to the right!
What CHRW has going for it is that it doesn’t trade in products, and it is largely a service provider. So far, there has been no indication that services are part of the trade wars. Additionally, seeing that a large part of its revenue (billed in US dollars) comes from overseas, a declining Greenback in the face of a trade war should be great for CHRWs bottom line!
Dollar General Corporation (NYSE: DG)
If a trade war were to erupt, it could probably trigger a mini recession in the United States. As products sanctioned by our trading partners will cost U.S consumers more, it could also foster a brief spike in inflation. Looking back at DG’s performance, it did exceptionally well through the recession of 2008-2009 – and it is well positioned to weather anything that’s thrown at it now!
Investors would do well to hold investments that draw 100% of their revenue from within the US, and which are not overly impacted (at least not directly – like steel or oil producers!) by trade disputes. And what’s more trade-war and recession-proof than a discount retailer like DG? The company has been around since 1939, and has a massive presence southern, southwestern, Midwestern, and eastern US.
Its products are so well diversified – from bread and eggs and frozen foods, to health and beauty supplies, office stationery and toiletries, and from carbonated beverages, cookies and sugar and spices, to milk, candles, cookware and gardening supplies. DG services Americans through a network of 14,534 outlets across 44 states. If some of DGs products suffer from a trade war, chances are that others (many more!) will benefit from it!
Author does not have investment in stock discussed in this article. Sign-up for our bi-weekly newsletter so you don’t miss any hot investment opportunities. Also don’t forget to get our recently published Best Blockchain Stock To Invest In Right Now report absolutely free.