The new USMCA trade deal affects companies spanning multiple, trade-sensitive industries including the Canadian stocks on our list
SmallCapPower | October 3, 2018: The yet to be ratified United States-Mexico-Canada (USMCA) trade deal has removed a shroud of uncertainty clouding the Canadian economy for the past several months. Trade-sensitive industries, which export a significant portion of their product to the U.S., have been hit particularly hard as the Trump Administration aggressively pursued a renewed trade agreement between North America’s largest economies. These industries, include automotive and industrials, dairy, lumber, and meats, also cover the Canadian stocks on our list today. Although USMCA is definitely a positive for some industries, it has done little to address ongoing issues with other industries, namely softwood lumber.
Linamar Corporation (TSX:LNR) – $63.26
Industrials
Linamar is a diversified manufacturing company operating in several industries, including the automotive, industrials, agricultural, and energy industries. The company generates 66% of its revenues from its Automotive segment, and so the stock has been particularly sensitive to Trump’s threats to impose tariffs on Canada’s automotive industry should Canada fail to come to a trade agreement. Under USMCA, Canada avoided potentially 20-25% in tariffs applied to its automotive parts exported to the U.S., a move that would have crippled Linamar. Instead, the new deal places a limit on Canadian auto exports to the U.S., but that limit is well above what Canada currently exports to its southern neighbor. The stock is down by more than 15% from its 26-week high of $75.06 in May.
- Market Cap: $4.1 Billion
- 6 Month Returns: -8.2%
Saputo Inc. (TSX:SAP) – $40.61
Consumer Packaged Foods
Saputo produces and distributes several dairy-based products including a variety of cheeses, milk products, cream, and yogurt. The Company also produces non-dairy products that include dips and coffee products. While the deal gives the U.S. access to roughly 3.6% of Canada’s dairy market, the industry could benefit from reduced uncertainty, potentially paving the way for a partial share-price recovery. The stock is down by more than 10% from its 26-week high of $45.39 in July.
- Market Cap: $15.8 Billion
- 6 Month Returns: -0.9%
West Fraser Timber Co. Ltd. (TSX:WFT) – $73.83
Forest Products
West Fraser Timber produces and sells lumber and pulp products to Western Canada and the U.S. As 60% of the Company’s revenues are generated from the U.S., West Fraser is particularly sensitive to the political climate. USMCA failed to address the softwood tariffs imposed by the Trump administration on Canadian lumber exports in November 2017, and so the stock could struggle to make a meaningful recovery as it faces continued margin pressures from the tariffs. Since implementation, the Canadian softwood lumber industry has incurred nearly $200M of tariff-related expenses. West Fraser Timber’s stock is down 25% since its 26-week high of $97.92 in July.
- Market Cap: $5.4 Billion
- 6 Month Returns: -11.5%
Maple Leaf Foods Inc. (TSX:MFI) – $30.62
Consumer Packaged Foods
Maple Leaf Foods is a consumer protein company offering poultry, pork, turkey, and plant-based protein products. As 25% of the Company’s sales are generated outside of Canada, Maple Leaf’s financial performance is closely related to ongoing trade developments between the U.S. and Canada. The USMCA deal largely maintains the status quo for agricultural and meat producers, removing a great deal of uncertainty clouding the industry. Maple Leaf’s stock is down by more than 11% from its 26-week high of $34.45 in July.
- Market Cap: $3.8 Billion
- 6 Month Returns: -1.5%
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
To read our full disclosure, please click on the button below:
