UBS: These are the companies most at risk from President Trump's trade war

Rockwell Automation

Ticker: ROK

Industry: Electrical equipment and multi-industry

Year-to-date performance: -10.4%

"Exposure to global capacity build-out, autos," fueled the risk to Rockwell, UBS said.

SPX Flow

Ticker: FLOW

Industry: Electrical equipment and multi-industry

Year-to-date performance: 0.0%.

UBS cites "higher cyclicality,international exposure, and leverage" as to why SPX may be more at-risk.

Deere & Co. (John Deere)

Ticker: DE

Industry: US machinery

Year-to-date performance: -10.9%

"Ag machinery companies could be negatively impacted in the near term by falling soybean prices and weaker demand if Chinese imports decline," UBS warned in the report. "They could also be negatively impacted by weaker hog exports."

CNH Industrial

Ticker: CNH

Industry: US machinery

Year-to-date performance: -13.8%

"Tariffs have had a negative impact on the Machinery sector already, as a result of increases in steel prices," UBS said.

"We think the trade scenario could have some additional negative impact, although US machinery companies import few finished products from China. Still, a slowdown in global GDP would likely affect machinery demand. "

Illinois Tool Works

Ticker: ITW

Industry: US machinery

Year-to-date performance: -15.8%

"Auto tariffs could negatively impact auto suppliers," UBS warns.

Pier 1 Imports

Ticker: PIR

Industry: Hardline, Broadline, and Food Retail

Year-to-date performance: -49.2%

"A number of subsectors within Hardline retail sell goods that are imported from China," UBS said. "The degree of exposure varies widely by subsector. For instance, Home Furnishings players such as PIR, RH and WSM source a majority of their products from China (we estimate 30-70% of their merchandise are manufactured in China)."

Bed Bath & Beyond

Ticker: BBBY

Industry: Hardline, Broadline, and Food Retail

Year-to-date performance: -17.0%

"If and when the tariffs are actually implemented, it could lead to demand destruction, product substitution & channel shift," said UBS. "Retailers will likely look to source products from domiciles outside of China. Elasticities will be tested. The companies will likely look to pass along the pressure that is experienced across the supply chain (not just on finished goods)."

Best Buy

Ticker: BBY

Industry: Hardline, Broadline, and Food Retail

Year-to-date performance: +13.8%

"Given the limited stock price reaction since the announced proposal of a 10% tariff on $200 billion of Chinese imports, we don’t think the market is pricing in much downside from an event of a trade war," said UBS.

Macy's

Ticker: M

Industry: U.S Softlines Retail

Year-to-date performance: +54%

"Softlines retailers typically source in China and many brands have growth plans intertwined with growing share in the attractive Chinese market," said UBS. "Companies in our coverage have made concentrated efforts to diversify manufacturing away from China over the last decade due to rising costs relative to other Asian countries, but the sector remains disproportionately vulnerable to escalating tariffs."

Kohl's

Ticker: KSS

Industry: U.S Softlines Retail

Year-to-date performance: +35%

Kohl's derives 40% of its sales from private brands, according to UBS, which says "we don't believe [KSS] has the pricing power to offset China-sourcing exposure in a trade-war scenario."

Gap

Ticker: GPS

Industry: U.S Softlines Retail

Year-to-date performance: -7.0%

"GPS is positioned as a value player and although it has significant sourcing exposure to China, we don't think it can raise prices—particularly at Gap and BR which are already very promotional," said UBS.

Canadian Pacific

Ticker: CP

Industry: Freight Transportation

Year-to-date performance: +10.8%

"The UBS trade war scenario could result in lower volumes and lower revenue for the Freight Transports, and in turn lower margins owing to the companies’ intrinsic operating leverage," UBS said. "For the Rails, in our view, international (incl. in/outbound U.S.) revenue exposure ranges from a low of 15% for the Eastern Rails to a high of about 85% for the Canadian Rails, while the Western Rails and KSU are in between."

Canadian National Railway

Ticker: CNI

Industry: Freight Transportation

Year-to-date performance: +5.3%

"In our view, Freight Transports may reduce workforce and delay capex in the event of a trade war," said UBS. "Companies in the sector have yet to announce any measures, or planned measures, though. "

Expediters International of Washington

Ticker: EXPD

Industry: Freight Transportation

Year-to-date performance: +12.8%

"A number of the Freight Transport stocks are trading near all-time high multiples of trailing EPS, which is justified in our view by strong EPS growth driven by lower tax rates; but the high multiples may also reflect that there is little priced in vis-À-vis the potential trade war," said UBS.

ITT

Ticker: ITT

Industry: Electric equipment and multi-industry

Year-to-date performance: +14.6%

"We don't think any of our covered stocks are 'safe' given the knock-on demand effects but we anticipate the least negatively impacted names to include those with a combination of more resilient 'replacement/recurring' demand, low auto OE mix, higher domestic (but less cyclical) exposure, low leverage, higher margin/pricing power and proven management agility," the electric-equipment analysts said. "We see higher relative risk to ITT given auto and international exposure."

Olin

Ticker: OLN

Industry: North American Chemicals

Year-to-date performance: -19.0%

"We believe a trade war scenario would have a negative impact across most of our coverage," said UBS' chemicals team. "The majority of the sector would see the impact of lower global growth weigh on demand and global utilizations (impacting pricing, growth, and margins), and would face headwinds from lower global oil prices (lowering the global cost curve and US cost advantage)."

LyondellBasell Industrie

Ticker: LYB

Industry: North American Chemicals

Year-to-date performance: +0.5%

"On the negative side we believe there would be more impact on the basic petrochemicals with a higher degree of negative risk on construction linked chemicals," said UBS. "We highlight OLN, LYB, MEOH as having above average risk due to the linkage of product prices with crude oil and negative impact of lower GDP growth on demand."

Methanex

Ticker: MEOH

Industry: North American Chemicals

Year-to-date performance: +14.5%

"We believe that companies which will be directly impacted by tariffs will optimize production to supply China with materials from sites outside of the US, and then will optimize supply chains in order to adjust to any shift in trade patterns," said UBS. "We also believe that companies across our coverage would likely scale back capex and controllable spending if the demand outlook appears to be more uncertain/negative."

Qualcomm

Ticker: QCOM

Industry: Semiconductors and Semiconductor Equipment

Year-to-date performance: +0.6%

"The semiconductor trade imbalance in China is second only to oil," said UBS. "The weighted revenue exposure to China is ~30% for our coverage universe, but we estimate >50% and potentially ~60% of all semis dollars are ultimately consumed in China. Lastly, China is spending >$100B to build out captive semis manufacturing capacity, making it far and away the biggest incremental driver for Semi Equipment. Any export controls would seriously curtail this opportunity."

Micron Technologies

Ticker: MU

Industry: Semiconductors and Semiconductor Equipment

Year-to-date performance: +18.5%

"QCOM and MU have the biggest direct revenue exposure to China in our coverage universe, both >50% of consolidated revenue," said UBS. "Others with significant automotive and industrial exposure – like TXN – could also be affected as would virtually all of the SPE companies as we project indigenous China efforts to grow to >20% of the total market."

AMD

Ticker: AMD

Industry: Semiconductors and Semiconductor Equipment

Year-to-date performance: +74.18%

"There fears around this issue as well as cyclical concerns," said UBS. "Semis as an entire complex are trading at a slight discount to the S&P500 versus a 10-yr average of ~10% premium. On a 5-yr basis, however, semis are trading spot in-line with averages relative the S&P500. It is therefore hard to argue there is much priced in for this issue."

Aptiv PLC

Ticker: APTV

Industry: US Autos & Auto Parts

Year-to-date performance: +9.7%

"We estimate industry costs would increase by ~9.0% in the UBS trade war scenario (25% tariff on vehicle imports & no tariff on auto parts)," said UBS. "Assuming all costs are passed on to the customer and a price elasticity of 1.35 implies US auto sales could decline by ~12.2% (~2.1m units)."

Visteon

Ticker: VC

Industry: US Autos & Auto Parts

Year-to-date performance: -5.0%

"Automakers would need to raise prices to adjust for the cost increase," said UBS.

"The complexity of the global auto supply chain will make it difficult to relocate facilities in the short-term and passing on costs will be challenging in the competitive US auto market. If the tariffs remain in effect long-term, continuing to import vehicles for sale in the US may not be feasible. It is possible a 25% tariff could lead importers to route vehicles to other markets. This could lead to downward pricing pressure in foreign markets as offering 20% incentives in foreign markets would still be preferable to paying the US tariff."

Denbury Resources

Ticker: DNR

Industry: Oil & Gas

Year-to-date performance: +91.7%

"The impact to Exploration & Production companies will likely be felt through a decline in the oil price," UBS said. "One of the surprises in energy has been the strength of oil demand, following a period of lower prices (2015 thru mid-2017). The risk resulting from a trade war is the impact on Global GDP. Our oil team estimate that a 50bps decline in Global GDP could result in WTI prices falling to ~$50-60 / bbl range (in an "extreme scenario")."

MEG Energy

Ticker: MEG CN

Industry: Oil & Gas

Year-to-date performance: +48.8%

We believe the strip is generally priced into equities at $62/bbl in 2019," UBS said. "A $50 – 60/bbl WTI price would impact equities as the market works to determine duration and depth of the decline. Direction of the commodity has historically driven absolute and relative performance in equities, which we expect to be the case here as well. "

Frank's International

Ticker: FI

Industry: Energy: Oil Services & Drilling

Year-to-date performance: +27.4%

"The magnitude of any pull-back in the sector will be dictated by the impact on oil (including changes to long-term price expectations) and the resultant impact on cash flow and spending for the E&P sector," said UBS. "Our oil team estimates that given a 50 bps decline in global GDP, oil prices in 2019 could soften to ~$50-$60/bbl in an "extreme" scenario."

Ensco

Ticker: ESV

Industry: Energy: Oil Services & Drilling

Year-to-date performance: +14.4%

"Among our coverage universe, the offshore drillers (e.g. ESV, NE) would be most negatively impacted by a trade war scenario given the longer-term duration / large up-front expenditures for most offshore projects (potentially delays or cancellations in new offshore investments) and higher crude break-even levels," UBS said.

Noble

Ticker: NE

Industry: Energy: Oil Services & Drilling

Year-to-date performance: +25.0%

"A sustained disruption in oil demand from a trade-war would result in declining earnings for the sector as lower levels of E&P spending, equipment utilization, and pricing results in declining revenues and margins (magnitude dependent on change in oil prices and changes to long-term pricing expectations)" said UBS. "Capital expenditures would also decline, although at a modest level given the severely curtailed spending levels since the start of the downturn."

Freeport-McMoran

Ticker: FCX

Industry: Americas Metals & Mining

Year-to-date performance: -23.5%

"Global metals prices are supported by Chinese economic growth (China is ~50% of consumption)," said UBS. "If US and Chinese GDP growth slow, we expect a decline in commodity prices, and a subsequent decline in earnings for commodity producers. US steel prices have risen as a result of tariffs; however, we expect a negative effect on demand volume combined with an increase in US capacity will result in lower prices over the next 6-12 months."

AK Steel

Ticker: AKS

Industry: Americas Metals & Mining

Year-to-date performance: -31.6%

"All Americas Metals & Mining companies would be negatively affected, in our view. Metals such as copper, iron ore, and steel are traded globally," said UBS. "Producers of these commodities have little insulation from global macro events. The US is a net steel importer, but the auto industry accounts for 30% of US steel demand, and volumes are at risk."

Gerdau

Ticker: GGB

Industry: Americas Metals & Mining

Year-to-date performance: +4.6%

"We expect most companies to do nothing," said UBS. "Some US steel producers have announced capacity increases as they expect to take market share from imports. If prices decline significantly, mining capex will likely decline with slower production as miners will avoid burning reserve volumes at low prices.

International Paper

Ticker: IP

Industry: Pulp & Paper Packaging

Year-to-date performance: -12.8%

"On the export front, the impact is likely to be limited, in our view," said UBS. "In 2017, 13% of North American containerboard production was exported, but China represented only 9% of total exports (or 1% of North American container-board production). In our view, North American producers could redirect China volumes to other regions to avoid a potential import tariff imposed by China."