Oh, tariffs. Those pesky tools of trade wars keep economists and investors on their toes. With the spectre of Trump’s tariffs looming once again, it’s time to reassess our portfolios. Let’s dive into two Canadian mid-cap stocks: Linamar (TSX: LNR) and Hut 8 (TSX: HUT). We’ll explore why you might want to part ways with one and cozy up to the other.
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Linamar
Linamar is a heavyweight in the auto parts manufacturing sector, supplying components to major automakers. Many of which are based in the United States. In the third quarter (Q3) of 2024, Linamar reported sales of $2.64 billion, marking an 8.3% increase from the previous year. The Industrial segment saw a 24% rise, largely due to MacDon’s market share growth and the Bourgault acquisition. Net earnings were $144.6 million, a 6.1% increase from Q3 2023, with an earnings per share (EPS) of $2.35, up by 6.3%. Free cash flow was notably strong at $270 million, a significant improvement over previous years.
However, the company’s heavy reliance on U.S. customers could spell trouble if tariffs are reinstated. Increased costs and potential shifts in demand could put the brakes on Linamar’s growth trajectory. Investors should keep a close eye on trade developments and consider whether Linamar’s U.S. exposure aligns with their risk tolerance.
Hut 8
On the flip side, Hut 8 offers a compelling case for investment in these uncertain times. As a leading cryptocurrency mining company, Hut 8 is less tethered to traditional trade channels and more aligned with the burgeoning digital economy.
In Q4 2024, Hut 8 reported revenue of $43.7 million and net income of $0.9 million. Plus, it reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $5.6 million. The company mined 234 Bitcoin at a weighted average revenue per Bitcoin mined of $61,025. That’s compared to a cost to mine of $31,482. Hut 8 held 9,106 Bitcoin in reserve with a market value of $576.5 million as of Sept. 30, 2024.
For the full year 2024, Hut 8 reported revenue of $162.4 million, net income of $331.4 million, and adjusted EBITDA of $555.7 million. The company also achieved a 30% reduction in energy costs per megawatt-hour in Q4 2024 compared to the same period in 2023.
The better buy
While Linamar’s strong financial performance is commendable, the looming threat of tariffs introduces a layer of uncertainty that could impact its U.S.-centric operations. The auto sector is going to face some serious challenges both in Canada and the United States. And until those challenges are addressed, investors may want to look elsewhere.
Conversely, Hut 8’s focus on digital assets and impressive financial results position it as a resilient choice in the face of trade tensions. Investors seeking to navigate the choppy waters of potential tariffs might consider reallocating resources from traditional manufacturing to the digital frontier represented by Hut 8, especially as the company expands its Bitcoin reserve and reduces its costs.
In these unpredictable times, staying informed and agile is key. As always, conduct thorough research and consult with financial advisors to ensure your investment decisions align with your financial goals and risk tolerance.
