For over a month, the threat of tariffs and a full-blown trade war has been at the top of investors’ minds. Not only is it unclear how badly the economy could be affected by a trade war and what Canadian stocks could be impacted, but it’s also unclear exactly which industries will face tariffs, how high those tariffs will be, and how long they will last.
The one certainty that almost everyone agrees on is that, over the long haul, tariffs and a trade war will be detrimental to the economy and the majority of stocks on the TSX.
With that said, though, and although it’s impossible to predict exactly how a trade war might unfold, there are certainly a handful of stocks that could perform well depending on how the situation develops.
So, while no investment is guaranteed to thrive during an economic shakeup, here are three Canadian stocks to keep your eye on that could potentially benefit in a trade war.
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One of the best Canadian stocks to buy and hold through a trade war
While a trade war could hit stocks across many industries, even those traditionally considered safe and stable, one of the best Canadian stocks that could benefit in this environment and see the growth in its business surge is Dollarama (TSX: DOL).
If there’s one stock that’s proven it can grow in virtually any economic environment, but especially when economic growth slows, it’s Dollarama. As a discount retailer, Dollarama sees more shoppers walking through its doors when economic conditions worsen, and consumers look to save money.
In fact, over the last few years, as inflation surged and interest rates climbed rapidly, Dollarama’s revenue and earnings growth accelerated significantly. While many businesses struggled with rising costs and weaker demand, Dollarama saw its revenue growth increase from roughly 6-8% per year to more than 16% as inflation surged.
So, in a trade war scenario where economic activity slows, and discretionary income comes under pressure, consumers are likely to keep tightening their belts. That bodes well for Dollarama, which specializes in selling everyday essentials at more affordable prices.
Therefore, if there was one Canadian stock to consider buying that could benefit in a trade war and continue its exceptional pace of growth, Dollarama is certainly one of the best to consider adding to your portfolio today.
Gold stocks could continue to rally
In addition to Dollarma, another stock that could benefit if a trade war escalates is iShares S&P/TSX Global Gold Index ETF (TSX: XGD). During times of economic or geopolitical uncertainty, gold tends to rally due to its safe-haven appeal.
We’ve already seen gold prices surge to record highs in recent weeks, and if tensions continue to rise, gold could easily keep trending higher. That puts gold mining stocks in a strong position, which is exactly why the XGD exchange-traded fund (ETF) could be one of the best Canadian stocks to buy ahead of a trade war.
There are plenty of individual gold stocks that you could consider buying, too, but in this uncertain economic environment, a lower-risk investment, such as an ETF offering exposure to dozens of different companies, is your best bet.
So, if a trade war causes further market volatility or economic uncertainty, the XGD ETF is certainly one of the best Canadian stocks to buy now that could benefit significantly.
A well-known Canadian brand
Lastly, Roots (TSX: ROOT) is a micro-cap Canadian retailer that could see a bump in popularity if the trade war rhetoric intensifies and the “buy Canadian” movement picks up steam.
During times of political tension or economic nationalism, consumers often become more mindful of where their products come from. And with rising tariffs on foreign goods, Canadian-made products have already become more attractive to shoppers.
Therefore, Roots is well-positioned to benefit due to its strong brand recognition and proudly Canadian identity.
At the same time, though, as a consumer discretionary stock, Roots could face challenges if the economy goes into a recession and consumers cut down on their spending.
So, while Roots is a Canadian stock that could benefit from a short-term trade war if the economy slows significantly, it’s a stock that could also potentially face significant challenges.
