ASO - UBS outlines major beneficiaries should China tariffs be taken off

In a broad-ranging review of retail, UBS advised that auto parts, electronics, and furniture retailers are likely to get the biggest boost from a potential shift in tariff policy from the Biden administration.

On the fourth anniversary of the initial set of China tariffs under the Trump administration on July 6, rumors of potential changes to China tariff strategy are increasingly percolating through news and social media. Early on Wednesday, former deputy director at the National Economic Council Clete Williams said a relief package on the trade barriers is likely to come “ pretty soon ”.

Ahead of this expected action, a team of analysts at UBS compiled a list of companies across the retail space that are likely to be most or least impacted by changes.

The retail space was homed in on based upon its less strategic tilt and the likelihood that it would be first in line for tariff amendments should they come to fruition. The bank’s analysts suggested categories like apparel, home furnishings, and sporting goods are likely to be least controversial

“We believe that retailers such as Best Buy ( BBY ), Bed Bath & Beyond ( BBBY ), and Williams-Sonoma ( WSM ) likely source at least 35% of their goods from China (indirectly and directly),” the research report noted. “These stand to be beneficiaries of any changes.”

In line with Williams-Sonoma ( WSM ), both RH ( RH ), Wayfair ( W ), and Floor & Decor Holdings ( FND ) are expected to benefit as each sources 30% or more of their products from China. However, the research suggested that both Floor & Decor ( FND ) and Wayfair ( W ) will have trouble hanging on to elevated prices that could keep the benefit from tariff shifts in-house.

Yet, among the stocks pinpointed as the largest beneficiaries were auto parts retailers like Advance Auto Parts ( NYSE: AAP ), AutoZone ( NYSE: AZO ), and O’Reilly Automotive ( NASDAQ: ORLY ). The research suggested that the rollback of tariffs would ease pressures on the 20-40% of goods sourced from the region while the retailers likely maintain elevated prices for consumers.

Elsewhere, Dollar Tree ( DLTR ) is likely to benefit given it sources about 30% of its products from China. Its recent upping of price to $1.25 is likely to remain sticky in the bank’s view, adding tariff savings directly to the bottom line. Dollar General ( DG ), by contrast, is estimated to source only 5% of its product from China.

Below is a sample of companies with significant China product exposure outlined by the bank:

Read more on the latest tariff talk .

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