MW Fast-food companies including McDonald's lead Morgan Stanley basket of stocks that can mitigate tariffs

By Steve Goldstein

President Donald Trump is a big fan of fast food, and investors might become aficionados too as a way to ride out the impact of tariffs, according to a basket of stocks put together by Morgan Stanley.

Ahead of Wednesday's announcement of reciprocal tariffs, the Wall Street bank compiled a list of companies that are in a position to mitigate tariff risk.

Risk-mitigation strategies includes a combination of pricing power, currency hedging, the ability to redirect products to markets without tariffs, stockpiling inventories and diversifying supply chains.

For companies like McDonald's $(MCD)$, Domino's Pizza $(DPZ)$, Taco Bell owner Yum! Brands $(YUM)$ and Burger King owner Restaurant Brands International $(QSR)$, they have both pricing power as well as the ability to diversify supply chains.

Their list of companies in a position to mitigate risk includes Ferrari $(RACE)$, which already has announced price hikes of up to 10% on most of its vehicles; auto parts retailer AutoNation $(AN)$; steelmakers U.S. Steel $(X)$ and Cleveland-Cliffs $(CLF)$; and industrial REITs including Prologis $(PLD)$.

Companies that will find difficulty mitigating tariff risk include Best Buy $(BBY)$, Warby Parker $(WRBY)$, Wayfair (W)and Honeywell International $(HON)$.

More broadly, the bank said capital goods rather than consumer stocks should fare better, even though they also face risks from tariffs, due to their pricing power.

They said the market on Friday started to price in a more onerous tariff outcome, which would include additional tariffs on China, broad tariffs on the European Union as well as Vietnam, Japan, South Korea and India, and an expiration of USMCA exemptions for Mexico and Canada. In that scenario, there could be a retest of the low end of the firm's first-half range it saw for the S&P 500 SPX, at around 5,500.

"Holding the 5500 level in this potential scenario would depend on to what extent (1) the market believes that higher tariff rates would be negotiated down in the near future (i.e., it's just a starting point), (2) consumer/corporate confidence takes a further hit from such an outcome, and (3) we see a breakdown in the labor market data (so far this hasn't occurred)," said strategists led by Mike Wilson.

S&P 500 futures (ES00) were trading below 5,600 on Monday as Japan's Nikkei 225 JP:NIK slumped 4%.

-Steve Goldstein

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March 31, 2025 04:07 ET (08:07 GMT)

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