4 Stocks to Sell Before Trump's Tariffs Take Effect

The dust is beginning to settle from the 2024 election, and companies are starting to digest what a second Trump term means for business. On the campaign trail, Candidate Trump promised another round of tariffs on foreign goods, but it remains to be seen what promises actually translate into law once the administration comes to power. 

Some companies like Steve Madden are attempting to get ahead of the curve by moving production out of China now, but others aren't as nimble and will likely bear the brunt of higher costs. Which public companies are likely to be hit hardest by tariff expansion? Here’s a list of 4 stocks you might want to consider selling before the next trade war salvo.

Methodology

Each company chosen for this list faces at least one of the following issues:

• Reliance on imports, especially goods from China 
• Limited ability to pass higher costs onto customers 
• Lack of negotiating power with suppliers 
• Thin margins that could make it challenging to absorb costs 

The retail industry is already bracing for higher costs. According to the National Retail Foundation, companies are preparing for these additional costs by raising prices on a variety of goods that could cost consumers between $46 billion and $76 billion in purchasing power. Retail will be a major theme amongst these stock picks, especially in areas where customers expect low prices and have substantial alternatives.

Dell Technologies Inc. DELL

Dell has been one of the market's biggest winners since the start of 2023. The company has re-entered the S&P 500 and its stock price has soared from under $40 in March 2023 to over $130 as of this writing. The stock has pulled back a bit since hitting an all-time high of $179 in May, and more pain could be on the way if the proposed tariffs come to be.

Dell sells a variety of electronics, from computers and laptops to cloud and networking solutions. This line of electronics depends on affordable printed circuit boards (PCBs), capacitors, resistors, casings, and assembly operations, and much of this company infrastructure is located in China. Additional tariffs on these components could force Dell to either raise prices faster than customers see reasonable or relocate some of their production outside of China. Either solution could hamper future stock growth. Dell is currently rated a Buy, but the most recent analyst reports put the consensus price target at $117, which is below the current market price.

Five Below FIVE

If you or your spouse are primary education teachers, you likely have spent a lot of time in Five Below looking for school supplies, affordable electronics, student rewards, and perhaps some candy for the lounge. The company sells a variety of merchandise at highly discounted prices, and many of its electronic products are imported from China.

Five Below gets hit from both sides in a potential tariff war. Not only is the company heavily reliant on Chinese imports, but its business model leaves very little room to raise prices. Customers who see higher prices at specialty retailers like Five Below may just take their business to higher-end competitors like Target Inc. TGT. Analysts currently rate FIVE stock as a Hold with an average price target of $129. However, the three most recent analyst reports (Truist, BofA Securities, and Evercore ISI) only had an average price target of $89, which is about where shares are currently trading. BofA analyst Lorraine Hutchinson noted in her downgrade that Five Below sources more than 20% of its products from China and lacks the pricing power to pass those costs onto consumers.

Lowe's Companies Inc. LOW

Another big winner from the past two years could be facing more headwinds if tariffs come to fruition. Lowe's has benefited from the home price boom as millions of Americans tapped their expanding home equity for upgrades and renovations following COVID. LOW shares shot from a pandemic low of $86 to $258 by December 2021 and recently made a new all-time high at $270 a few weeks ago. However, if we use history as a guide, Lowe's stock had a choppy ride during the first round of tariffs in 2017.

Lowe's sells high-end appliances like washing machines, dryers, refrigerators, water heaters, and other important (and imported) home goods. Not only will the company face higher costs on these expensive goods, but consumers who have already tapped chunks of home equity may put off new projects or rush to buy before the tariffs kick in. From 2017 to 2020, LOW shares exhibited high volatility with four different 15% corrections. With more tariffs on tap and consumers stretched thin, Lowe's profits could take a hit in the coming months. The company reports earnings on November 19 and investors will be looking for clues on how tariffs could affect its bottom line.

Walmart Inc WMT

Another stock up big this year, and another company under pressure from the incoming administration. Walmart didn't suffer as much as the broader indices during the 2022 bear market, but the stock has roared to life in 2024. WMT shares are up over 60% year-to-date, including an eye-popping 41% in the last six months. The company has beaten analyst earnings expectations in each of the previous eight quarters as well.

In recent years, Walmart has sought to divest itself from China by moving some production to India, but Chinese imports still make up about 60% of the company's products. It's unlikely that much more production will be moved out of China by the time tariffs take effect, and Walmart doesn't have the supplier negotiating power that a company like Costco Wholesale Corp COST does. Additionally, Walmart's Every Day Low Price model runs on razor-thin margins. In July, Walmart reported a net profit margin of 2.34%. While not as low as some previous reports, Walmart has consistently seen its net margin drop below 3% since the first Trump administration, and the company may not have the pricing power to pass additional tariff costs onto its customers.

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