Donald Trump’s return to the White House could mean a fresh wave of tariffs that shake up global trade. While some industries might struggle under the weight of protectionist policies, others could see new opportunities. Canadian investors looking to position themselves for potential gains should consider companies poised to benefit from shifting trade dynamics. Two mid-cap stocks that stand out in this regard are Linamar (TSX: LNR) and Interfor (TSX: IFP).
Trump recently announced his plan for reciprocal tariffs, a move designed to match the import duties that other countries impose on U.S. products. The policy aims to create a level playing field for American businesses, but it also risks igniting new trade tensions with key partners, including Canada. In previous years, Trump’s tariffs targeted industries such as auto manufacturing and lumber, two areas where Canadian companies could either face new hurdles or find unexpected advantages. If similar policies are reinstated, certain stocks on the TSX could stand to gain.
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Auto and lumber
Linamar, one of Canada’s largest auto parts manufacturers, is in a strong position to benefit from new trade restrictions. If tariffs make foreign auto parts more expensive, U.S. automakers may look for North American suppliers to keep costs under control. Linamar, with its extensive operations in Canada and the U.S., could see a boost in demand. The company’s latest earnings reflect its resilience, reporting $2.64 billion in sales for the third quarter (Q3) of 2024, an 8.3% increase year over year. The industrial segment was particularly strong, growing 24% thanks to market share gains in combine drapers and contributions from its acquisition of Bourgault Industries. With a forward price-to-earnings ratio of just 5.37, Linamar remains attractively valued.
While the auto industry is one potential winner from tariffs, another area to watch is the lumber sector. Trade disputes over Canadian softwood lumber have been ongoing for decades, with previous tariffs leading to price increases and supply disruptions. Interfor, one of Canada’s largest lumber producers, could find itself in a strong position if the U.S. imposes new duties on foreign lumber, pushing American buyers to source more from domestic or Canadian suppliers. Although Interfor has faced recent headwinds, including a net loss in Q3 2024 due to pricing pressures, the long-term outlook remains compelling.
Resilient and adaptable
Investing in these two stocks isn’t just about playing the tariff angle. Both Linamar and Interfor have demonstrated resilience and adaptability in challenging market conditions. Linamar’s expansion into agricultural equipment and continued growth in industrial machinery position it well for the long term. Regardless of trade policy changes. Meanwhile, Interfor’s operations across North America allow it to pivot as needed, whether by adjusting production levels or taking advantage of shifting market conditions.
Of course, there are risks involved. Trade policies can be unpredictable, and tariffs don’t always have their intended effect. A trade war between the U.S. and its partners could lead to broader economic disruptions that impact multiple industries. However, the potential upside for companies that benefit from protectionist policies is significant, and investors who act early could see strong returns.
For those looking to put $33,000 to work in the stock market, splitting it between Linamar and Interfor could be a smart move. Both stocks offer exposure to industries sensitive to trade policies but also have strong long-term growth potential. Linamar’s steady revenue growth and low valuation make it a compelling buy. Meanwhile, Interfor’s potential to benefit from higher lumber prices adds another layer of opportunity.
Bottom line
In a world where trade tensions are once again front and centre, investors need to think strategically. While some companies will struggle with new tariffs, others will find ways to thrive. By focusing on Canadian firms with strong fundamentals and the ability to capitalize on shifting trade dynamics, investors can turn uncertainty into opportunity. Linamar and Interfor are two stocks that fit the bill, offering the potential for gains in the wake of Trump’s latest tariff plans.
