President Donald Trump's decision to impose sweeping tariffs on imports from nearly every country in the world has resulted in one of the worst quarters for the U.S. stock market in years. Investors fear that the impact of this move, as well as the retaliatory actions that some countries have already responded with, will take a heavy toll on the entire economy.
In this now-shaky macro environment, those who wish to buy stock may want to start by looking for companies that might not be as affected by a trade war due to the nature of their businesses. Netflix (NFLX 0.22%) and Visa (V +0.55%) are two great examples which fit that bill, but aren't just "tariff plays." Each can perform well in the long run.
NASDAQ: NFLX
Key Data Points
1. Netflix
Netflix's business is somewhat insulated from the impact of tariffs because it has no physical products. It generates most of its revenue from subscriptions. That's not to say the streaming specialist will be entirely immune from the impacts of Trump's trade war. The streamer has a fast-growing, ad-supported subscription tier. If the tariffs lead to an economic slowdown, many companies could cut their ad budgets, which would likely affect Netflix.
In addition, the streaming leader might lose paid subscribers if a recession hits. Still, Netflix should perform better than most in these challenging times since the lion's shares of its sales don't come from ads, and most companies suffer one way or another in economic downturns. Just as important, Netflix is still well-positioned to deliver strong performances long after this storm has subsided.
Netflix's subscriber base provides it with a massive amount of data on viewer habits that it can use to steer its content production decisions in the right directions. It has done that quite successfully throughout its history. Its revenue, earnings, and free cash flow have been growing at healthy clips recently, and they can keep doing so in the long run, considering the massive amount of white space still available to the company.
NFLX Revenue (Annual) data by YCharts.
Netflix estimates it has an addressable market of $650 billion in the markets where it operates -- it has only grabbed 6% of that total. While it will never capture anywhere close to all of it since the competition in streaming is fierce, Netflix remains the top dog. It should profit more than its peers from the ongoing shift in viewing away from linear TV and toward streaming. It is an excellent stock to buy and hold through this tariff-driven market meltdown and beyond.
NYSE: V
Key Data Points
2. Visa
Visa is a leading provider of financial services. Billions of credit and debit cards worldwide are branded with its famous logo. However, Visa does not issue these cards itself, nor does it provide the credit that underpins them -- that's the job of banks. Visa provides a network that facilitates digital transactions and charges a fee for each transaction made.
Since it does not issue the cards or lend money, it isn't subject to the risk that borrowers will default -- a threat that intensifies during recessions. If Trump's macroeconomic policies lead to a recession, Visa won't have to worry as much about that issue. Further, tariffs can lead to higher inflation, as Federal Reserve Chair Jerome Powell pointed out recently.
Inflation could be good for Visa, though. Since the fees it charges are computed as a small percentage of each transaction, people spending more money on the same items means higher revenues for Visa. With hundreds of millions of transactions on its network every day, incrementally growth in the average size of its fees starts to add up. That's why Visa could navigate the current environment just fine.
The company also has excellent long-term prospects. There is an ongoing shift in purchasing activity away from cash and checks, which still are used for trillions of dollars worth of retail activity. Meanwhile, Visa benefits from the network effect. The more consumers hold credit and debit cards with its logo, the more attractive it is for businesses to accept the brand as a payment option. And the more places Visa cards are accepted, the more appealing those cars will be to consumers. The result is a virtuous cycle that has kept the company's place in the financial landscape secure for decades.
Lastly, Visa is a terrific dividend stock. It has increased its payouts by a total of about 392% over the past decade. Visa's dividend should be safe even in challenging times. And for investors, reinvesting those growing distributions can add a boost to what should already be superior long-term returns.
