- Earnings of consumer companies with high exposure to China could suffer under Trump's trade policies, UBS says.
- The analysts said Best Buy, Five Below, and Wayfair are especially at risk.
Donald Trump's proposal of stiff tariffs on goods from China could slam the earnings of some retailers, UBS analysts said.
Several US-listed stocks—namely, Best Buy, Five Below, and Wayfair—are heavily exposed to Trump's trade proposed trade policy, the bank said in a note.
"Tariffs are likely to pose a significant headwind for several of these retailers for at least the near-term. While the longer-term implications are unclear, we do believe that this situation is more likely to lead to at least temporary mis-pricings for some of these stocks," the analysts said in a Monday note.
"Right now, we think the overhang is significant on names like Five Below, Best Buy, and Wayfair," they added.
The analysts say that if those retailers were to absorb 5% of the rise in the cost of goods associated with a potential tariff, they would each experience a double-digit plunge in earnings; Five Below would see a 15% reduction, Best Buy would experience a 26% loss, and Wayfair could see earnings plunge over 40%, the analysts said.
The analysts' estimates come as Donald Trump and Kamala Harris are in a dead heat in the polls. The former president has proposed 20% duties on imports across the board, with far more drastic 60% tariffs on products from China. Five Below, Best Buy, and Wayfair each have high exposure to goods from China.
But it isn't all bad news for these stocks. The analysts said that historical trends show that retailers often find ways to adapt, and even these stocks have unique circumstances that could spare them from the potential hits to earnings.
For instance, even if Five Below raises prices, it may still offer greater value than competitors, while Wayfair's vendors could simply pass along the tariffs to the consumer in the form of higher prices rather than assuming it themselves, the analysts say.
At Best Buy, there's a chance the market prices for consumer electronics simply adjust, insulating the retailer from bearing the brunt of the tariffs independently, the analysts say.
As the situation gets clearer, the stocks could see some upside.
"There could be select opportunities to use this uncertainty as a chance to accumulate the shares of some of these names when the peak fear exists," the analysts said, adding, "As there is more clarity on the situation, these stocks likely also have the most to gain from having greater resolution on the situation."
In the past, high duties on China during Trump's first term resulted in higher prices in categories subject to the tariffs, which likely contributed to slowing consumer spending, the report said.