With tariffs back on the table and oil briefly soaring past US$100 per barrel, there’s real fear that inflation and higher rates could be on the table over the next year. Indeed, time will tell how the tit-for-tat trade war ends, but given what both sides stand to lose, one has to think that a deal will be inked at some point in the next couple of months.
With Mexico and the U.S. moving towards a bilateral deal, my guess is that the tariff trouble will soon be replaced with a deal that helps spark investor enthusiasm. Indeed, whenever you dig into how bad things could get, it’s easy to hit the sell button and ask questions later. And while there’s probably nothing investors dislike more than uncertainty, I do think that brave investors can take advantage of the dips, which may very well result in short-term pain for long-term gains. In this piece, we’ll look at two names that I’d be willing to watch on the way down.
While they could be in for more pain as the tariff war looks to take its next steps (maybe there will be selling pressure if time goes on with no deal), I would look to add to a position on further weakness, perhaps steadily over time.
Indeed, tariffs are scary, especially when they kick off in an inflationary environment, but, in due time, such scary circumstances tend to resolve. And, for investors, that makes panic-selling the wrong answer, even in the face of profound question marks tied to trade, the macro picture, or something else.
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Magna International
First, we have shares of Magna International (TSX: MG), which I think could be a worthy pick-up once the worst of the tariff scares work their way into the shares. Indeed, with the Canadian auto scene in the crosshairs, it feels natural to hit the sell button on a name like MG while looking to ask questions later.
While I’m not ready to back up the truck quite yet on the top-tier auto supplier, I do think that another return below the $90 per-share mark could be on the table, especially if a trade deal doesn’t happen until much later on in the year. While I’m avoiding the name because its shares aren’t exactly dirt-cheap at 24.4 times trailing price-to-earnings (P/E), I do think that management’s confidence swimming forward in spite of tariffs is encouraging.
In short, Magna’s an at-risk play amid the trade war, but, at the same time, a deal could cause a sudden upward spike. As such, the name looks more like a hold than a buy or a sell.
Bombardier
Bombardier (TSX: BBD.B) was recently made a target amid the brutal trade war. And it was the last thing that the shares needed. Now down close to 20% from recent highs, there’s potential for the bear to keep clawing away at the still-decent year-to-date returns of around 25%.
Indeed, it feels like a good time to take some profits off the table, especially considering the U.S. exposure from the name and what it stands to lose if the trade war gets worse. Indeed, it’s mostly catastrophizing and uncertainty that are clouding an otherwise decent company.
While it might be too soon to buy, I do think it’s a worthy watch, especially considering the ground the firm has gained in recent years. While I’m avoiding it for now, I wouldn’t be against nibbling on a starter position right here at $300 and change.
