By Paul R. La Monica
President Donald Trump's whipsawing tariffs are roiling markets. Instead of worrying incessantly about a trade war, consider some alternatives: invest in companies with growth drivers intact or ways to benefit from trade turmoil.
"If you expect additional tariffs and disruption, the kinds of companies that tend to benefit are domestically oriented," says Que Nguyen, chief investment officer of equity strategies at Research Affiliates. "Look for ones that have a moat where they can pass on costs to consumers."
Nguyen likes organic grocery chain Sprouts Farmers Market and apparel retailer Gap. Sprouts has pricing power, she notes, and its emphasis on locally produced food should help shield sales if tariffs on products from Canada and Mexico go into effect. Wall Street expects Sprouts' profits to rise 24% this year and 13.5% in 2026. Its stock is up 6% this year.
Gap, a recent Barron's stock pick , would take some hits from Trump's tariffs on China, now at 20%, but Chinese shopping apps Shein and Temu may fare worse, allowing Gap to pick up sales, Nguyen says. Gap stock soared 15% on Friday after the company topped Wall Street estimates, but the price still isn't demanding at 10 times 2025 estimates with a 3.4% dividend yield.
Greg Halter, director of research at Carnegie Investment Counsel, is sticking with "quality growth companies" in real estate, financials, and healthcare.
One real estate investment trust, or REIT, he likes is Public Storage, which rents self-service storage. Its facilities are 92% occupied and the company is finding ways to cut costs, switching more customers to digital services and installing solar panels to curb electricity costs. Analysts don't see much profit growth this year but expect operating income to rise 4% in 2026, with ample coverage for the REIT to maintain or hike its dividend, which yields 3.9%.
Halter also owns American Tower, a cellular infrastructure firm that should benefit from rising data traffic due to increased uses of wireless devices and artificial intelligence. Wall Street is forecasting earnings growth of 13% annually, on average, for the next few years. The stock is bucking the tariff malaise, up about 13% so far this year.
Financial services stocks have been hit by concerns that tariffs will slow economic growth and capital markets activity like financing debt and equity deals. The Financial Select Sector SPDR exchange-traded fund is down 5% in the past month.
Nguyen thinks concerns are overblown. "Banks are cheap," she says. And Trump's push for deregulation could lead to a rebound in merger activity and initial public offerings. Funds using strategies from Research Affiliates own Citigroup and Wells Fargo shares, which trade for seven and 10 times 2025 earnings estimates, respectively. Profits this year are expected to soar more than 25% at Citigroup and 11% for Wells Fargo.
Halter likes Progressive, a property-and-casualty insurer that has been gaining market share in automobile insurance. It's expected to generate annual earnings increases of 15% on average for the next few years. He also owns Chubb, a commercial property-and-casualty firm that is a top holding of Berkshire Hathaway. Chubb is expected to benefit from easing insurance loss ratios over the next few years following a spike due to the recent California wildfires. Both stocks have a domestic focus and trade at price/earnings ratios below the S&P 500's multiple of about 19.
Healthcare stocks have been a recent winner as investors seek alternatives to high-price growth stocks. Two standouts, says Halter, are medical-technology company Stryker and hospital services company Steris; both have scant tariff exposure. They're also in healthcare sectors that aren't likely to face as much scrutiny from Health and Human Services Secretary Robert F. Kennedy, Jr. as drugmakers and biotechs. Neither is cheap at around 25 times earnings, but both are expected to report profit increases of more than 10% this year.
CVS Health may finally be mounting a comeback; it's up 45% this year on the back of stronger earnings. Dan Genter, CEO and chief investment officer of Genter Capital Management, favors the stock partly because he thinks it will be "taboo" for Trump to do anything with tariffs that raise the already steep costs of drugs and other medical care. Shares are still cheap at 11 times 2025 profit estimates, with a 4.1% yield.
Genter also likes Medtronic, which is seeing steady demand for its insulin-delivery pumps and heart-monitoring devices. Medtronic, up about 16% this year, trades at 16 times 2025 estimates and yields 3%.
Some fund managers are trying to play tariff offense — looking for trade war winners. "There are companies that will benefit from tariffs," says Jake Schurmeier, portfolio manager at Harbor Capital Advisors.
Miner Freeport-McMoRan, for instance, has a copper mining operation in Arizona that could get a boost from potential tariffs on copper imports. The stock trades for 16 times earnings estimates and could rally further if copper prices, up nearly 20% this year, continue to climb.
Schurmeier also likes First Solar, a U.S.-based solar manufacturer that should benefit from higher duties on imported panels. The company, which manufactures in the U.S. and India, recently announced plans to reduce production in Malaysia and Vietnam, attributing the decision, in part, to the "U.S. policy environment."
First Solar is cheap at five times forward earnings estimates. Even if profits take a haircut, that provides a wide margin of safety. Wall Street's consensus target price of $245 is nearly 90% above current levels.
Solar, of course, is on the wrong side of Trump's fossil-fuel oriented energy policy. But tariffs on imported panels would help it maintain pricing. Its customers are utilities and industrial companies that are still ordering panels to meet growing electricity demand. For contrarian investors, that may make First Solar a ray of light amid the dark days of Trump's trade war.
Write to Paul R. La Monica at paul.lamonica@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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