On the edge of a possible economic hurricane, President Donald Trump is taking the biggest political gamble of his life. In an apparently contentious decision, Trump threatened a 5% tariff on all imported goods from Mexico beginning June 10. Like most of the administration’s policy, there’s a method behind the madness. But the madness also means you should consider now which stocks to sell.
To understand this latest round of economic conflicts requires understanding Trump, an admittedly difficult task. Throughout his campaign, though, the former real-estate mogul made clear he wanted a border wall to stem Central American immigration. Frustrated with opposition stonewalling, the president overruled several of his key advisors. The optics that the commander-in-chief has gone rogue gives bearish investors extra incentive to target Mexican stocks to sell.
Like clockwork, Mexican stocks did indeed fall. Once the tariff threats filtered throughout Wall Street, the exchange-traded fund iShares MSCI Mexico Capped ETF (NYSEARCA:EWW) dropped nearly 4%. As an export-driven economy, Mexico heavily depends on positive relations with the U.S.
But contrary to initial gut reactions, it’s not just Mexican stocks that present challenges to investors. First, our neighbor to the south is a key partner to the global economy, not just the U.S. Second, many of the cheap or reasonably priced goods we enjoy, we have thanks to Mexico.
In other words, we’re going to suffer here in the U.S. too.
The wrinkle in all this is that Mexico, again, heavily depends on us. As a result, Mexican President Andrés Manuel López Obrador has hinted at making concessions on migration management.
Still, this is a dynamic situation because Mexico cannot show weakness, especially after years of suffering Trump’s insults. Therefore, hold tight and watch these stocks to sell:
Stocks to Sell: Ford (F)
Having watched The Apprentice several times, President Trump would undoubtedly want to see Mexican stocks tumble into the abyss. But I believe that if this new tariff threat translates into a prolonged trade war, American icons like Ford (NYSE:F) will ultimately suffer the steepest consequences.
Here’s the thing about American cars: they’re terribly overpriced for what you get but at least they’re unreliable. According to Consumer Reports, Ford is the most reliable American car. Compared to all brands, they’re ranked 18 out of 29. No wonder why F stock has taken a hit.
But now, Ford executives are shifting their attention from Tokyo to Trump. Due to longstanding economic pressures, Ford along with its competitors have shifted production to Mexico. It was really the only way to keep F stock afloat. But with potential new tariffs on the horizon, the automaker will face double trouble from China and Mexico, leaving it begging to be included in a list of stocks to sell.
Because historically, countries don’t win dual-front battles. I’m sure the same could be said about dual-front trade wars.
General Motors (GM)
In recent weeks, I’ve really bashed American car brands like Ford and General Motors (NYSE:GM). Although it might seem unpatriotic to do so, I beg to differ. With a bailout and high hopes, we anticipated better things. Now, GM stock deserves its coming pain.
I believe the real treason here is for American companies to sell their people junk goods which disproportionately affects poor and disenfranchised communities. To better illustrate my point, I highly recommend watching the “greed…is good” speech from the movie Wall Street. It’s the American taxpayers that deserve better.
But to be fair, GM stock was already on life support as the first round of the U.S.-China trade war kicked off. General Motors depends greatly on China, which is the world’s largest automotive market. And thanks to unique historical and cultural factors, Chinese consumers love American car brands like GM. Of course, that loyalty is now under direct fire.
Tensions with Mexico, then, serve as the executioner’s bullet. According to The Wall Street Journal, GM sold 663,000 Mexico-built vehicles in the U.S. This accounts for roughly 22% of domestic sales. If tensions escalate, you must put GM on your list of stocks to sell.
Nissan Motor (NSANY)
Perhaps one of the most underappreciated components of this fresh conflict is that the bears won’t simply focus on Mexico when seeking stocks to sell. In fact, in addition to U.S. companies, some of the worst victims will likely hail from abroad, such as Nissan (OTCMKTS:NSANY).
While Japanese cars have transformed the automotive landscape, Nissan is decidedly the black sheep. Many years ago, the company sold its soul to the French, which was problem number one. Second, Japanese authorities arrested Nissan CEO Carlos Ghosn last year for financial-misconduct allegations.
Thanks to its troubles, NSANY stock has crumbled this year. And unfortunately, tensions between the U.S. and Mexico threaten to undermine any comeback efforts.
Nissan does significant business in Mexico. Anecdotally, several Mexicans with whom I spoke expressed pride in this brand. Unfortunately, market pressures have forced the company to scale back its Mexican operations. The tariff threats are exactly what NSANY stock doesn’t need right now.
Invariably, when you’re talking about potential tariffs against Mexico, you’re most worried about which Mexican stocks to sell. Based purely on dynamic headlines, Cemex (NYSE:CX) stands to lose significant ground, especially if tensions don’t find immediate resolution.
For one thing, CX stock was already choppy heading into this stunning news. Shares slipped into negative territory for the year in April. They have since failed to return to the break-even point.
But more worrisome are the broader implications. As an exporting economy, Mexico relies on its commodities distribution and manufacturing strengths. Specifically concerning Cemex’s concrete business, Mexico exported nearly $184 million worth of the material last year. Our southern neighbor also ranks as one of the top-20 cement-exporting nations in the world.
Therefore, a tariff on Mexico’s exported goods would negatively impact Cemex’s multinational business, which includes the U.S. Plus, Trump threatened additional tariffs beyond the 5% if he doesn’t get certain concessions.
It’s an ugly situation all around for some Mexican stocks, and CX stock is among the ugliest.
Wal-Mart de Mexico (WMMVY)
If Wal-Mart de Mexico (OTCMKTS:WMMVY) had a bit more trading volume here, I’d rank it higher among stocks to sell. Still, WMMVY stock is an easy one. Obviously, tariffs don’t just hurt corporations. They filter down to the everyday man or woman working in those companies, eventually translating to consumer-sentiment erosion.
But it’s not all terrible news for WMMVY stock. Unlike many other Mexican stocks, Wal-Mart de Mexico shares have performed admirably this year. They’ve returned double digits since the January opener. So with another trade war possibly in the making, you have a great opportunity to pocket those profits.
In other words, I think you should live for another day.
Don’t get me wrong: I think Mexico longer-term presents a wonderful opportunity. The country features a young labor force. This will become extremely relevant as developed countries focusing on digitalization will outsource their manufacturing components to other nations.
But with a nationalistic president at the helm, you can’t dismiss the threat toward all Mexican stocks.
Recently, The Washington Post ran a story entitled in part “Bigger than avocados.” The implication, of course, is that Mexico is a huge exporter of food products and agricultural goods. As such, grocers like Kroger (NYSE:KR) face substantial risks. It’s really no surprise that KR stock plummeted over 10% in May.
Like the rest of this stocks to sell list, Kroger can ill afford a trade war with a major supplier. Even before the heightened tensions with both China and Mexico, KR stock was on the ropes. The company badly disappointed for its most recent earnings report, delivering only $28 billion in sales. That represented a 9.5% loss year-over-year.
As you might expect, Kroger also suffered from squeezed margins. But with a potential trade war with Mexico, management has no choice but to push costs onto the consumer.
I’m not sure how they’ll react to this move, as the timing couldn’t be worse. We’re entering the summer season where gas prices typically jump. Additionally, the U.S.-China trade war might eliminate well-paying jobs, hurting the broader consumer base.
This one hurts me personally as I’m a shareholder. However, I think it’s important to include Sony (NYSE:SNE) on this list of stocks to sell for two reasons. Number one, it limits the number of hate-mail and internet-stalking incidents I receive when writing bearish stories. Second and more importantly, I want to demonstrate my objectivity toward SNE stock and other risky names.
Excepting the automakers, the other companies I mentioned have viable businesses. Unfortunately, the geopolitical winds just didn’t turn favorably for them. Thus, I must respect the tape and resist fighting obvious challenges.
SNE stock is a perfect example. Because consumer-tech leader Apple (NASDAQ:AAPL) is facing competitive threats to its hardware, I like Sony to disrupt them. Perhaps smartphones are dead ends, but the company has undisputed leadership in video games. With its massive content empire, Sony will likely maintain this advantage for several gaming-product cycles.
But here’s the problem right now: SNE, like other Japanese firms, made significant investments in Mexican manufacturing facilities. A possible tariff negatively impacts multiple Sony products, including high-profile ones like the PlayStation consoles.
As of this writing, Josh Enomoto was long SNE.