Are you a Canadian investor worried about how Trump Tariffs will impact your portfolio?
Depending on what you are invested in, you may have some basis for concern. Donald Trump has pledged to slap a 25% across-the-board tariff on all Canadian imports (that is exports from our perspective). This would raise the cost of many goods that Canadian businesses ship into the US. Companies that depend heavily on exports to the US, therefore, are vulnerable here.
While most experts doubt that the US will in fact slap a 25% universal tariff on Canada, the spectre of tariffs on specific goods is very real. For example, in the previous Trump administration, the President slapped tariffs on Canadian steel and aluminum. It seems likely that more tariffs on those types of goods are coming. In this article, I will explore three stocks that are entirely or mostly immune to Trump Tariffs, for risk-averse Canadian investors.
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Dollarama
Dollarama (TSX: DOL) is a Canadian dollar store chain that mostly sells made-in-Canada goods. It does sell a few branded US products but it also stocks Canadian alternatives. Some of the US goods could be impacted by retaliatory Canadian tariffs if Trump goes ahead with his tariff plan. However, the impact would be pretty minimal.
What does Dollarama have going for it, apart from its tariff-imunity?
For one thing, as a dollar store, it tends to see increased sales during recessions, while doing perfectly fine in boom times as well. So it’s a very counter-cyclical stock that behaves differently from most stocks.
Second, it’s a solid grower, with revenue up 8% and earnings up 17% in the trailing 12-month (TTM) period. It compounded at even faster rates over the last five years.
Third and finally, DOL is quite profitable, with an 18% net margin and a 16% free cash flow (FCF) margin. Unfortunately, this highly profitable growth company is priced, for all its growth and profit, with a 36 P/E ratio. However, it is definitely a Trump Tariff-proof pick worth keeping an eye on.
Canadian Tire
Canadian Tire (TSX: CTC.A) is a Canadian outdoor goods retailer. It sells things like camping gear, bicycles, tools, and more. The company imports some products from the US but does not export anything to that country. So, it is relatively tariff-resistant.
Canadian Tire’s performance wasn’t amazing in the TTM period: earnings were up 15% but revenue declined 7%. Over the last five years, the company compounded its revenue at 2.6% and its earnings at 0.76%. Not a great showing on growth, though the retailer is profitable, with a 4% net margin and a 4.7% FCF margin. It’s also considerably cheaper than Dollarama, trading at 14 times earnings.
Gildan Activewear
Gildan Activewear (TSX: GIL) is a company that makes un-branded “no name” clothing with blank looks. This kind of look has become fashionable lately with the rise of the “quiet luxury” movement. Gildan does export some of the clothing to the US, but the overwhelming majority of its customers are domestic. So, it is relatively tariff-proof.
Like the other stocks on this list, Gildan Activewear is both profitable and growing. It has a 13% net income margin and an 11.5% FCF margin, so it beats Canadian Tire on profitability. It also compounded its free cash flow by 24% per year over the last five years – an impressive growth streak. Finally, the company’s shares are not valued all that steeply, trading at 18 times earnings.
