Ask a Fool: Could Any Stocks Actually Benefit From a Long-Term Trade War?

A prolonged trade war will be bad for most stocks, but some could weather the storm better than others.

Matthew Frankel, CFP
Matthew Frankel, CFP
Aug 9, 2019 at 12:00PM
Investment Planning

Q: The trade war recently escalated. If it lasts longer than experts originally predicted, which stocks could be winners?

I don't know that many stocks will benefit from a prolonged trade war. Higher tariffs, trade uncertainty, and hostile trade-related rhetoric are almost certain to be a generally negative catalyst for most areas of the market.

Having said that, there are some types of businesses that are in a better position than most to get through a trade war in better shape than others.

For example, a company that depends almost exclusively on domestic business (and domestic suppliers) could outperform during a long trade war. Verizon Communications, Southwest Airlines, and utility stocks like Dominion Energy are some of my favorites in this category.

Another area of the market that could outperform during a prolonged trade war are companies that either depend on large amounts of borrowed money or that pay high dividends.

Escalating trade tensions have put pressure on interest rates, and this could be magnified even more if the trade war presses on. Lower interest rates mean cheaper borrowing costs for companies. Furthermore, falling interest rates are typically a positive catalyst for the share prices of high-dividend stocks.

Real estate investment trusts (REITs) are a good example. Most REITs rely on large sums of borrowed money to grow, so cheaper borrowing costs could lead to higher margins. And as income-focused stocks, REIT yields tend to move up or down along with market interest rates -- lower yields translate to higher share prices.

Many REITs also depend almost exclusively on U.S. business. Apartment REIT Equity Residential and healthcare REIT HCP are two great examples.

The bottom line is that while a prolonged trade war would likely be a negative catalyst for most U.S. stocks, companies like those mentioned here are in a good position to outperform the overall stock market as long as trade tensions persist.