3 Tariff Resistant Stocks From Steven Cress

Renewed concerns over impending US tariffs, set to take effect August 1st on key trading partners (Canada, EU, Mexico) and specific products, are reigniting market anxiety. These potential tariffs threaten to exacerbate inflation, compress corporate margins, and heighten stagflation fears, evidenced by recent CPI data and a sharp decline in September rate cut expectations. Consequently, a defensive investment strategy favoring US-centric stocks with significant domestic revenue and reduced global supply chain reliance is advised, with Quant-rated strong buys like ATI Inc., Sterling Infrastructure, and Bank of America highlighted as examples of companies well-positioned to hedge against these trade policy shifts.

Analysis

Market focus is shifting back to geopolitical trade risk, with new US tariffs on major partners including Canada, the EU, and Mexico potentially being implemented after August 1st. These proposed tariffs (30-35%) on imports that collectively dwarf those from China, alongside specific 50% tariffs on industrial metals, threaten to exacerbate inflationary pressures. This concern is substantiated by the recent June Consumer Price Index, which rose 2.7% year-over-year, contributing to a sharp decline in market expectations for a September interest rate cut from 93% probability down to 56% within two weeks. The downstream impact is already evident, with early Q2 earnings from S&P 500 companies showing margin compression due to an inability to fully pass costs to consumers. Consequently, a defensive strategy favoring US-centric companies is being advocated. Three 'Quant Strong Buy' rated stocks are highlighted as potential hedges: ATI Inc. (ATI), which has the majority of its manufacturing in the US and posted 9.7% YoY revenue growth; Sterling Infrastructure (STRL), with 100% of its revenue from the US, 29% Q1 adjusted EPS growth, and a 37% ROE; and Bank of America (BAC), which derives 87% of its revenue domestically and recently posted a double earnings beat. While these stocks exhibit strong growth and profitability, their valuation grades (D+ for STRL, D for BAC) suggest they are trading at a premium, a factor justified by their robust fundamentals and relative insulation from direct tariff impacts.

Key Decisions for Investors

• Consider reallocating capital towards US-centric companies with high domestic revenue and limited global supply chain exposure to hedge against potential stagflation and margin compression from upcoming tariffs.
• Evaluate specific names like ATI (ATI), Sterling Infrastructure (STRL), and Bank of America (BAC), which demonstrate strong fundamentals such as high ROE, robust EPS growth, and positive analyst revisions, potentially justifying their premium valuations in the current environment.
• Investors should not be deterred by stocks trading near 52-week highs if the underlying fundamentals, relative to the sector, remain strong; focus on growth, profitability, and momentum metrics over share price history alone.
• Closely monitor upcoming inflation data and Federal Reserve signals, as the sharp reduction in rate cut expectations to 56% indicates a significant shift in monetary policy outlook that could increase market volatility.