A customer shops in a Lululemon store in Miami Beach, Fla., on April 3.Joe Raedle/Getty Images
There are winners and losers in every battle and U.S. President Donald Trump’s global trade war – and the market meltdown it created this week – is no exception.
While broader global markets were down this week, analysts and money managers believe some stocks and sectors will outperform this trade war and the economic fallout that is expected to follow.
Here’s a look at the potential winners and losers, with a focus on Canadian sectors:
The winners
Utilities: “Sectors that can continue to grow through an economic slowdown are particularly attractive right now,” says Craig Jerusalim, senior portfolio manager at CIBC Asset Management Inc.
He points to the waste sector, including companies such as GFL Environmental Inc. (GFI-T) and Waste Connections Inc. (WCN-T) as “particularly well-suited to handle economic uncertainty” because they’re essential services – garbage collection and recycling – that people will need regardless of the economic environment. And, because they operate in local markets, they’re largely unaffected by tariffs, he says.
Energy infrastructure: Mr. Jerusalim also believes large pipelines such as Enbridge Inc. (ENB-T) and TC Energy Corp. (TRP-T) are also well insulated from market uncertainty since their volumes and pricing are on guaranteed contracts.
“Additionally, their attractive dividend yields provide an additional layer of resiliency and comfort to nervous investors,” he says.
Rebecca Teltscher, portfolio manager at Newhaven Asset Management Inc. in Toronto, likes energy infrastructure firms such as Pembina Pipeline Corp. (PPL-T) and AltaGas Ltd. (ALA-T).
“While energy products have been hit with 10-per-cent tariffs, the means to transport the energy remain critical and North American energy infrastructure remains integrated and can’t be easily replaced,” she says. “The U.S. is dependent on Canadian oil and those pipelines will remain full.”
She also describes utilities such as Fortis Inc. (FTS-T) and Emera Inc. (EMA-T) as a “flight to safety” during periods of economic uncertainty since they generate regulated, consistent returns throughout any market cycle. They also don’t have exposure to cross-border trade. And, she adds, they’re stable, dividend-paying names.
Telecom: Ms. Teltscher also likes telecom stocks such as BCE Inc. (BCE-T) and Telus Corp. (T-T), which are immune to tariffs since they operate primarily in Canada.
“While their growth is expected to slow over the next few years, we still like the defensiveness and safety of the sector,” she says, especially since internet and cell phone services are essential in today’s digital economy.
Gold: While the price of gold has been volatile after hitting a record US$3,201.6 per ounce on April 2, it remains a haven for investors during volatile economic times. Gold will continue to be supported by a “multitude of macroeconomic and geopolitical factors,” analysts at Ventum Capital Markets wrote in a recent note, saying that they expect the metal to continue reaching new highs this year.
“We have newfound confidence in the adage ‘stronger for longer,’ ” they wrote.
The losers
Retail: Consumer discretionary brands such as fashion retailers Artizia Inc. (ATZ-T), Lululemon Athletica (LULU-Q) and Roots Corp. (ROOT-T) are facing two major headwinds: tariffs and an expected slowdown in consumer spending.
“When consumers are worried about the economy or their job, they stop spending,” Ms. Teltscher says.
Consumer staples, including grocery chains such as Loblaw Companies Ltd. (L-T), which includes the No Name and Shoppers Drug Mart brands, as well as discount retailer Dollarama Inc. (DOL-T), could do better in this economic environment, but tariffs and higher costs could cause consumers to spend less and put pressure on margins. Stifel analyst Martin Landry noted this week that Dollarama’s recent guidance reflects a slow start to the year “as well as a frugal consumer, even in the value channel.”
Autos: The auto sector is an obvious loser given its focus in Mr. Trump’s tariff war, which in Canada includes auto parts manufacturers such as Martinrea International Inc. (MRE-T) and Magna International Inc. (MG-T). Algoma Steel Group Inc. (ASTL-T) is also hugely affected by the tariffs on its products used in autos and a range of other products. Algoma stock is down about 30 per cent over the past month.
Technology: Technology stocks such as Shopify Inc. (SHOP-T) and some of the Magnificent Seven stocks such as Nvidia Corp. (NVDA-Q) and Tesla Inc. (TSLA-Q) have taken a big hit in recent weeks.
“As tariffs brought market and economic uncertainty, the technology sector was the hardest hit as they were the highest valued,” Ms. Teltscher says. “Growth expectations for these names will need to be adjusted and they probably have much further to fall before they start trading at reasonable valuations again.”
Energy and mining: Stocks in these sectors are also expected to be losers in this tariff war as a global economic slowdown reduces demand for oil and gas and for base metals such as copper, which is used in everything from home construction to computers and autos.
S&P/TSX Capped Energy Index was down about 13 per cent this past week, while the S&P/TSX Global Mining Index was down about 12 per cent. Canadian copper miners such as Teck Resources Ltd. (TECK-B-T) and First Quantum Minerals Ltd. (FM-T) each dropped by about 18 per cent this past week, while major energy producers such as Suncor Energy Inc. (SU-T) and Cenovus Energy Inc. (CVE-T) were down 13 per cent and 18 per cent this past week, respectively.