With President Trump back in the Oval Office to begin his second term (the so-called Trump 2.0 era), many Canadians are likely wondering what’s to happen regarding tariffs. Indeed, tariffs can fuel inflation and take a big hit on economic growth. Some folks out there even think that a tit-for-tat trade war of sorts could push Canada’s economy into a downturn.
And while we can only speculate on the specifics about potential Trump tariffs to come, I think it’s never too early to hedge against the risks that start to fly into our radars. Indeed, it’s usually not a good idea to dismiss risks, even though there are bull-case scenarios that are more than likely to pan out.
Trump tariffs may or may not be coming
While I don’t think 25% tariffs will be the new normal, I do think that investors should be ready to keep investing for the long haul, regardless of what happens. Indeed, a bull-case scenario could see Trump tariff threats put to rest if Canada strengthens borders and takes steps to address other issues Trump may have pointed out previously. In any case, Trump tariffs may be scary, but I think investors looking to play the long game shouldn’t overreact when it comes to their long-term TFSA (Tax-Free Savings Account) portfolios.
There are, however, certain Canadian firms that will feel the tariff hit a tad harder than others. And they could be in for a bit of turbulence over the coming weeks and months. Though it’s really hard to tell how much of potential Trump tariffs are priced in at current levels, I think that investors looking to buy on weakness should exercise caution.
In any case, here’s a TSX stock I’d hold off on buying until we have further clarity on if tariffs will be placed, when they’ll go into action, how large they’ll be (25% or lower?), and the potential retaliatory actions, and conditions for their removal.
Magna International
The auto-part makers, like Magna International (TSX:MG), could be weighed down further should Trump tariffs be waiting around the corner.
Undoubtedly, it certainly seems like there’s only so much room to the downside, with shares off around 54% from their all-time highs. Though shares look cheap at 10.9 times trailing price-to-earnings (P/E), shares may continue to be a wild ride for the entirety of the year.
Indeed, tariffs are a real risk at this juncture. However, if Trump’s tariffs are not imposed this year, I think MG stock could gain ground after moving through a rough patch last year. Either way, the 4.6% dividend yield looks tempting for those seeking passive income but don’t mind a more volatile ride. With a very high beta of 1.6, investors should expect more choppiness than the broader TSX Index.
In short, MG stock is a tremendous deep-value option that could go either way in the near term. If tariffs come online, the stock could move closer to the $55 range. However, if no tariffs arise, look for a relief rally and a potential comeback. For long-term investors, I’d look past tariff threats to the secular tailwinds that could help give a lift to the ailing auto-part makers. Indeed, Magna has a lot to gain from the electrification of autos trend!
