Jacob Sonenshine

Monday is the first day markets must confront tariffs. Indiscriminate selling took hold -- and investors should look to buy a host of stocks on any declines.

The three major U.S. indexes were all down more than 1% at one point Monday after President Donald Trump announced 10% tariffs on imports from China, and 25% tariffs on goods coming from Mexico and Canada. The indexes are off their lows as news around ongoing negotiations remain fluid.

The concerns, broadly speaking, are twofold. Many U.S. companies import materials from China, so a higher cost of goods would pressure gross profit margins. The other issue is that, since many companies will pass on that cost by lifting prices, consumer demand may ultimately take a hit. The companies with the least pricing power will see a hit to revenue, while companies with the strongest pricing power -- ones with the most pull with customers -- may emerge relatively unscathed.

Right now, the market is showing a tendency to exhibit a "sell now and ask questions later" mentality, as it often does when a new macroeconomic risk emerges. It isn't only the highly tariff-exposed companies -- chip makers, retailers, manufacturers -- that saw their stocks drop markedly. The vast majority of S&P 500 stocks dipped into in the red Monday morning.

That's why Evercore strategists showed which companies are immune from the tariff impact or have relatively low exposure to the issue. The ones that are seen as immune don't source much material from the trading partners that will face tariffs, so they're not directly impacted.

Evercore's rundown includes a laundry list of insurance groups, lenders and asset managers. Beware: lenders would see shrinking margins as inflation causes short-term interest rates -- banks' funding costs -- rise, and long-term rates fall. Asset managers see lower fee revenue as stock prices fall.

The list includes travel companies -- the major airlines, Airbnb, Booking Holdings and Expedia -- which dropped particularly hard. If consumer demand takes a hit, travel spending may also wane, especially since folks have already loaded up on vacations the past few years.

A handful of names whose product sourcing is not highly impacted by tariffs may emerge unscathed from any economic fallout from the whole issue. Many are the consumer staples that don't source much material from the trading partners and have demand trends that are not so sensitive to broader consumer demand:

   -- Anheuser-Busch InBev 
 
   -- Boston Beer Company 
 
   -- PepsiCo 
 
   -- Keurig Dr Pepper 
 
   -- Coca-Cola 
 
   -- Molson Coors Beverage 
 
   -- Monster Beverage 
 
   -- Procter & Gamble 
 
   -- Coty 
 
   -- L'Oréal 
 
   -- Kimberly-Clark 
 
   -- Church & Dwight 
 
   -- Energizer Holdings 
 
   -- Olaplex 
 
   -- Clorox 

Some consumer companies on the list that are at the lower end of pricing and could theoretically experience less sensitivity to the economy, include:

   -- Burlington Stores 
 
   -- Gap 
 
   -- Macys 
 
   -- Ross Stores 

One consumer brand on the list that has historically had strong pricing power is Lululemon Athletica.

Some healthcare stocks with limited sourcing exposure to the issue, and whose demand is almost entirely a function of patients' health needs, include:

   -- Amgen 
 
   -- Biogen 
 
   -- Pfizer 
 
   -- Merck 
 
   -- Bristol Myers Squibb 
 
   -- Elanco Animal Health 
 
   -- Eli Lilly 
 
   -- Viatris 
 
   -- Regeneron Pharmaceuticals 
 
   -- Moderna 

Another one is Netflix, which is seeing much of its growth come from countries outside of the U.S., China and Mexico, so any weakness in the U.S. consumer isn't a pressing issue.

Another one is Spotify Technology, which saw its stock drop more than 1% before rebounding some. The streaming-music platform can't see a cost problem, given the nature of its business, and it likely wouldn't even see a demand problem. Spotify has become increasingly popular, and doesn't cost more than a couple hundred dollars per month for its most expensive plan. The majority of analyst's expected sales growth over the coming few years comes from accumulating more users throughout the globe -- so U.S. demand is only a small part of the picture -- with monthly subscription prices expected to increase by just a few dollars a year.

Chemical makers Linde and Air Products & Chemicals are both on the list. They sunk more than 1% each before coming off their lows. They both sell industrial gases in more than eight countries, with the majority of their sales coming from outside the U.S. They produce gases locally, so they won't experience much increase in their cost of production as a result of tariffs.

Plus, they can weather potential economic choppiness in China. There are only three companies that provide these chemicals -- them and France's Air Liquide -- so they're expected to maintain strong pricing power.

When these stocks dip on tariff news, buy some shares.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 03, 2025 12:53 ET (17:53 GMT)

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