Stocks to Buy & Avoid If Trump Slaps Import Tariffs

Trump announced late last week his intention to impose severe tariffs of 24% on steel imports and 10% on aluminum imports "for a long period of time.” Although the move will safeguard American jobs, it triggered a selloff in the stock market.

Tariff: A Big Price to Pay

The move will be a boon to steel and aluminum makers as it would curb excess global production capacity, pushing metal prices higher. But higher prices will likely be detrimental to the number of industries and overall economic growth. This is especially true as it would not only hurt auto and aerospace sectors but also lead to an increase in prices of a wide range of products including vehicles, pipelines, boats, airplanes, locomotives, and even beer and soft drinks, affecting many industries in the broad market. This would terminate more jobs than curbs on imports create.

In particular, the restrictions could increase the cost of brewing and packaging beer, thereby resulting in a higher price for beer consumers in the United States. The Beer Institute, a trade group, estimated that the tariff would create the equivalent of a $347.7 million tax on beverages served in cans. This extra cost could equal the “loss of tens of thousands of jobs.”

The American International Automobile Dealers Association also issued a statement saying car prices will rise and put downward pressure on sales should Trump administration levy the tariffs. The auto sector accounts for 26% of U.S. steel demand in 2017, behind the construction industry’s 40%, according to data provider Statista. As such, homebuilders, which were already struggling with Trump's first tariffs imposed on lumber last year and a shortage of affordable homes, were under pressure from the planned tariffs. This is because higher steel price would raise construction costs, which would force builders to pass the higher cost to homebuyers.

Further, it could raise concerns over retaliation from China or other major U.S. trading partners, triggering a global trade war. The trading partners have already started threatening retaliation. The European Union is weighing retaliatory tariffs on $3.5 billion worth of U.S. imports, according to Reuters, while other countries like Canada, Mexico, China and Brazil have also warned of countermeasures. Moreover, the move would further complicate trade talks between the United States, Canada and Mexico over renegotiating NAFTA. Given the threat of a trade war, mega-cap companies, which have large exposure to the international markets, are likely to suffer, especially if trade tensions flare up.

That said, the curbs could lead to few winners but a number of losers from various corner of the equity space if the tariff is slapped. We have highlighted some of the stocks that investors should buy or avoid if Trump makes the final tariff announcement, which is expected this week:

Stocks to Buy

United States Steel Corporation X is an integrated steel producer with major production operations in the United States and Central Europe. The stock saw positive earnings estimate revision of three cents for this year in the past week and has an estimated growth rate of 93.81%. It has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Allegheny Technologies Inc. ATI is a global manufacturer of technically advanced specialty materials and complex components. It saw positive earnings estimate revision of three cents for this year in the past week and has an estimated growth rate of 162.50%. It has a Zacks Rank #1 and a VGM Score of B.

Century Aluminum CENX is a primary aluminum producer, supplying aluminum to diverse downstream manufacturing customers in the aerospace, automotive and energy industries, among others. The stock saw no earnings estimate revision activity in the past week but is expected to see massive earnings growth of 225% for this year. It has a Zacks Rank #1 and a VGM Score of B.

Stocks to Sell

Astrazeneca PLC AZN is one of the top five pharmaceutical companies in the world based on sales and a therapeutic leader in cardiovascular, gastrointestinal, oncology, anesthesia including pain management, central nervous system (CNS) and respiratory products. The company is expected to see earnings decline of 60.05% for this year. The stock has a Zacks Rank #4 (Sell) and a VGM Score of A.

SAP SE SAP is the recognized leader in providing collaborative e-business solutions for all types of industries and for every major market. The stock saw no earnings estimate revision activity in the past week and is expected to see earnings growth of 2.39% for this year. It has a Zacks Rank #4 and a VGM Score of B.

Ferrari N.V. RACE is engaged in designing, manufacturing and selling sports cars. The stock saw no earnings estimate revision activity in the past week and is expected to see earnings growth of 3.45% for this year. It has a Zacks Rank #5 (Strong Sell) and a VGM Score of F.

Tutor Perini Corporation TPC provides diversified general contracting, construction management and design-build services to private clients and public agencies worldwide. The stock saw huge negative earnings estimate revision of 47 cents in the past week for this year. It has a Zacks Rank #5 and a VGM Score of A.

Ultra Clean Holdings Inc. UCTT is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries. The stock saw no earnings estimate revision activity in the past week but is expected to see earnings decline of 1.71% for this year. It has a Zacks Rank #5 and a VGM Score of A.

Manitowoc Company MTW is a leading manufacturer of cranes that serve the infrastructure, residential & commercial construction, petrochemical, industrial, power/utility and military end markets. Though the stock is expected to see whopping earnings growth of 319.23% for this year, it has a Zacks Rank #4 and a VGM Score of A.

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Ultra Clean Holdings, Inc. (UCTT) : Free Stock Analysis Report
 
Astrazeneca PLC (AZN) : Free Stock Analysis Report
 
Ferrari N.V. (RACE) : Free Stock Analysis Report
 
Tutor Perini Corporation (TPC) : Free Stock Analysis Report
 
SAP SE (SAP) : Free Stock Analysis Report
 
The Manitowoc Company, Inc. (MTW) : Free Stock Analysis Report
 
Century Aluminum Company (CENX) : Free Stock Analysis Report
 
United States Steel Corporation (X) : Free Stock Analysis Report
 
Allegheny Technologies Incorporated (ATI) : Free Stock Analysis Report
 
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