Tariff Turmoil: Top 10 Stocks On Sale
The market has been primed for a correction for quite some time (e.g. valuations were rich and investors were overconfident in continuing high growth), and President Trump just pushed stocks over the edge with his draconian tariffs. We don’t know when the selloff will end, but we can estimate the three phases of this trade war. We can also say with significant confidence, the economy is still growing, and stocks will eventually trade higher (likely much higher). In this report, we count down our top 10 highly-attractive stock rankings, which includes an alternating mix of high-growth and high-income opportunities, to help you customize your portfolio to take full advantage of the impressive opportunities being created by this rip-your-face-off market correction.
3 Phases of the New Trade War
As you can see in the chart above, it didn’t take long for stocks to give back their gains from the previous year, as bonds (an assets class that was ridiculed as obsolete a few months ago) are now leading stocks in performance over the last year.
Phase 1: Liberation Day: Phase 1 of this trade war is President Trump announcing massive tariffs against international trading partners (most of whom which the US has a trade deficit). And of course, the hideous market selloff that just accelerated to frightening speed over the last few trading sessions. A case can be made that phase 1 has been going on for decades as foreign countries take advantage of US wealth, but no one can dispute Trump just whipped the trade war into high gear with his newly announced tariffs.
Phase 2: Concessions and Economic Damage: Phase 2 of the trade war will be the concessions and economic-destruction period. This will include a wide range of concessions and timeframes as the US renegotiates trading terms (tariffs) with foreign countries. Real economic damage will likely occur during this phase, as costs rise for US consumers, economic growth slows, and the declines we have experienced in the stock market so far likely reflect true value destruction that will occur as a result of the tariffs (as we wrote about here).
Regarding concessions, some will occur quickly, and be mostly meaningless, but the US President will most certainly tout them as big wins. Some concessions will happen slowly, and the value of the changes will be economically ambiguous (but again, there will be a lot of “victory lapping” from the US President).
The most important parts of phase 2 will be trade negotiations with large trading partners like China, Canada and Mexico. Mexico will likely be the quickest and most reasonable (because they are the most reasonable). Canada will likely be a lot friendlier (especially in their rhetoric) following their upcoming election at the end of April. China will be the least reasonable, simply because they are the most culturally different (i.e. they are communist, and they don’t really believe in things like “property rights” or “the American Dream”).
At the end of phase 2 (when most of the so called “concessions” have been made), real near-term economic damage will have been done, the long-term economics may actually be slightly improved for the US (in terms of trade deficits), and the US President will proclaim huge victory.
Phase 3: Relapse: Over time, less wealthy countries will creep back into taking economic advantage of the US, especially China (a country the doesn’t believe in property rights or Western values). However, phase 3 will also bring less uncertainty, less market volatility and healthy stock market gains (building off a new, albeit lower, base).
Whether we are closer to the beginning or end of the tariff selloff is uncertain, but stocks are certainly trading a lot lower than they were. And over the long-term they will likely be trading a lot higher than they are now.
So with that backdrop in mind, let’s get into our top 10 ranking of highly-attractive stocks, which includes an alternating mix of high-growth and high-income opportunities for you to consider (based on your own individual and unique situation and goals).
10. Nvidia (NVDA)
Nvidia is a highly-attractive growth stock that gets a lot of attention and that is currently trading down big. Nvidia is in the center of both the AI megatrend and the Trump Trade War. Regarding the former, Nvidia GPU chips are ground zero for AI processing (i.e. they are the premier chips and they are in extremely high demand—a really good thing). And regarding the trade war, the US has already placed international trade restrictions on Nvidia chips for national security reasons, and the new trade war has caused the shares to fall very hard as international sales may be restricted even dramatically more (i.e. less international sales for Nvidia).
Also, even though Nvidia is a US company, its chips (e.g. Blackwell) are largely produced by Taiwan Semiconductor in Taiwan, which complicates tariff considerations, especially because of ongoing disputes about Taiwan’s independence from China (China thinks they own Taiwan, Taiwan and the US disagree).
We recently wrote about Nvidia in detail here. But the bottom line is Nvidia is an extremely attractive long-term growth business, trading at a very compelling price and valuation (especially after the sharp trade war selloff), and if you are a patient long-term investor, Nvidia shares will likely eventually be trading dramatically higher than they are now.
9. Ares Capital (ARCC):
Switching gears to highly-attractive high-income opportunities, Ares Capital offers a big 9.6% dividend yield, and the shares just sold off sharply (and the price-to-book valuation has come down to approximately 1.0x or par—a good thing).
Ares basically makes loans to private companies, and the Trump trade war threatens this business because an economic slowdown increases the chances that the private companies Ares lends to won’t be able to pay back the loans. For example, credit spreads (or the difference in interest rates between safe loans, such as treasuries, and riskier high-yield loans, such as the ones Ares makes) just widened significantly. However, as a general rule, this makes Ares a more attractive investment opportunity because widening spreads have caused the valuation and price to fall (buy low) as long as you don’t think the sky is falling (i.e. as long as the Trump tariffs don’t completely destroy the economy—which we are banking on “they will not”). Said differently, the sell off in Ares just created a more attractive opportunity to pick up shares of this big-yield BDC (if you are into big yields).
The Top 8
The top 8 ideas are available here. They include an attractive mix of high-growth and high-income opportunities, on sale (and highly attractive) right now.
The Bottom Line:
President Trump is a bold loud mouth who is trying to improve the US economy by reducing trade deficits through tariffs. The recently announced tariffs will absolutely do harm to the US economy in the short term (if they are implemented) and the face-ripper stock market declines we have experienced (and that may continue) are already pricing in a significant amount of economic value destruction.
In the long-term, Trump’s efforts may incrementally improve the trade deficit and the US economy, although we can say with a high degree of certainty Trump will brag about the “success” of these tariffs no matter what.
We can also say with a high degree of certainty, the US (and global) economies are resilient and growing, and over the long term they will likely pull stock prices higher (and probably dramatically higher).
We also know that the stock prices of highly-attractive businesses (both high growth and high income) are now lower than they were, and significantly more attractive in select instances, such as those highlighted in this report (although trying to exactly call the bottom is a fool’s errand).
Rather, disciplined, goal-focused, long-term investing continues to be a winning strategy. And at the end of the day, you need to do what is right for you (based on your own unique situation). And if you buy attractive stocks now—you will be getting a much better price than you were a few days ago.