What are we looking for?
Canadian companies with negligible exposure to U.S. tariffs.
The screen
U.S. President Donald Trump recently imposed 25-per-cent tariffs on auto imports, set to take effect on Wednesday. In response, Prime Minister Mark Carney announced a $2-billion fund to protect Canadian auto jobs, with the potential for further retaliatory tariffs. While both leaders have signalled a willingness to negotiate, uncertainty around these discussions may weigh on Canadian companies heavily exposed to the U.S. market.
Many of Canada’s largest firms rely on U.S. expansion to drive growth, given that the U.S. economy is more than nine times the size of Canada’s by gross domestic product. But for investors who believe that the current trade tensions will linger, there may be upside in looking at domestic-oriented companies.
Using FactSet’s screening tool, I identified Canadian stocks with limited U.S. exposure by applying the following criteria:
- Market capitalization greater than $1-billion
- At least 80-per-cent revenue from Canada, and less than 5 per cent from the U.S., using FactSet’s proprietary algorithm
- Positive projected sales growth, indicating ability to grow despite tariffs
- Traded on the S&P/TSX Composite
Six companies remained as a result of these criteria, and they were ranked by year-to-date total return.
What we found
The average return for these companies is 3.9 per cent, close to double the 2 per cent return for the S&P/TSX Composite year-to-date. This suggests that companies with limited U.S. exposure may indeed be more resilient in the face of rising tariffs.
Telus Corporation, a Canadian telecom provider, ranked second on our screen with a 7.5-per-cent YTD total return. It also offers a strong dividend yield of 7.8 per cent, with dividend growth projected at 6.5 per cent in 2025. Telus has invested heavily in 5G infrastructure in recent years, which weighed on the stock owing to increased debt. But with Canadian interest rates declining and major capital investments largely behind it, Telus’s payout ratio is expected to improve, making the dividend more sustainable.
Canadian Natural Resources, an oil and natural gas producer, came in fourth on the list with a 2.4-per-cent YTD return. It stands out for its projected 15.3-per-cent sales growth and 12.6-per-cent EPS growth. Despite a 10-per-cent tariff on Canadian oil exports to the U.S. effective Wednesday, the company generates more than 96 per cent of its revenue domestically. That local focus helps insulate it from cross-border tensions, though its share price has felt pressure from last year’s drop in oil prices.
The information in this article is not investment advice. The author assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.
Arjun Deiva, CFA, is an MBA Candidate at the University of California, Berkeley, Haas School of Business.
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