7 U.S. Stocks Poised to Thrive Amid Trade Conflicts: Insights from Goldman Sachs

Trade disputes are increasingly capturing headlines and stirring investor concerns. According to Goldman Sachs, if President Trump enforces recent tariff threats, new duties could impact $781 billion worth of U.S. imports—about 27% of the total. Anticipating retaliatory measures from affected exporting countries, Goldman recommends focusing on U.S. companies that generate nearly all their revenue domestically. This article is the first of two from Investopedia analyzing this strategic approach.

Within Goldman’s portfolio of 50 Domestic Sales stocks, seven standout companies span transportation, steel, technology, and banking sectors.

Data source: Goldman Sachs U.S. Weekly Kickstart report (July 20); performance calculated through July 24 open using adjusted close prices from Yahoo Finance.

Over the same timeframe, the S&P 500 Index (SPX) gained 4.3%. While J.B. Hunt has underperformed the S&P 500 since May 31, it still leads on a year-to-date basis with a 6.8% return versus the index’s 5.5%.

Key Factors Driving Outperformance

Goldman notes that from late May through July 19, their Domestic Sales stock basket outpaced the S&P 500 by 130 basis points. This group benefits from a robust U.S. dollar, above-average U.S. economic growth, and relative insulation from trade-related risks. Furthermore, the basket’s valuation is appealing, featuring a forward price-to-earnings ratio of 17.8 compared to 17.1 for the broader S&P 500 over the next 12 months.

Potential Challenges Ahead

Although Goldman’s Domestic Sales stocks face minimal direct exposure to retaliatory tariffs, import bans, or consumer boycotts overseas, some may experience indirect effects. These could arise if their customers’ export volumes decline due to trade tensions—a factor not explicitly addressed by Goldman.

Additionally, Goldman highlights that U.S.-imposed tariffs will elevate costs for domestic companies, squeezing profit margins. On average, imports constitute about 30% of the cost of goods sold (COGS) for S&P 500 firms. Transportation companies, including railroads CSX and Norfolk Southern and trucking leader J.B. Hunt, have some of the highest imported COGS proportions, which could present cost challenges.

CSX Corporation

According to Seeking Alpha, CSX is recognized as the most cost-efficient railroad operator and continues to enhance its operations. Its operating profit margin has steadily increased, surpassing 34% in Q1 2018. A favorable business climate in its service regions is boosting shipment volumes. Zacks Equity Research reports that a system aimed at operational efficiency saved $460 million in 2017, with CSX targeting a 60% operating ratio by 2020—equivalent to a 40% operating margin. The company is also executing a $5 billion share buyback program through Q1 2019.

Paychex Inc.

Paychex, a leading provider of payroll and HR services, stands to gain from the growing trend of outsourcing these functions, according to Zacks. The company boasts a strong balance sheet with no long-term debt and $424 million in cash and investments, positioning it well for strategic acquisitions. MarketWatch consensus forecasts 9% EPS growth for fiscal 2019, while Paychex anticipates an 11% increase compared to fiscal 2018.

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