The US has signed agreements with both Mexico and Canada to delay the implementation of its planned tariffs on its two neighbouring countries by at least 30 days.
While optimism is warranted now that a global trade war seems to have been averted for a few weeks at least – investors should remain cautious as the United States could still proceed with raising tariffs against Mexico and Canada in March.
Provided that it does, chances are that both countries will respond with retaliatory tariffs on American goods, which could hurt the following two US exporters the most, according to Goldman Sachs.
Ovintiv Inc (NYSE: OVV)
Ovintiv – a petroleum company based out of Denver, Colorado could take a material hit if Canada announces retaliatory tariffs on US goods.
Why? Because this Russell 1000 company relies rather heavily on the Canadian market. In fact, it currently generates more than 10% of its revenue from the Great White North.
If Canada raises tariffs on American imports, Ovintiv will likely find it incrementally more difficult to remain competitive and, therefore, could end up losing market share in the region.
The added pressure on revenue may be a huge letdown for Ovintiv investors considering the company is already struggling with growth.
Ovintiv saw a worse-than-expected 12.3% year-on-year decline in its total revenue to $2.3 billion in its latest reported quarter.
However, OVV saw a sequential increase in its free cash flow despite lower commodity prices in its fiscal Q3.
Ovintiv stock also pays a healthy dividend yield of 2.86% at writing, which makes it more attractive to own, at least for income investors.
BorgWarner Inc (NYSE: BWA)
BorgWarner is another name that could feel the pressure if, not Canada, but Mexico announced retaliatory tariffs on American goods in March.
That’s because the automotive and e-mobility supplier generates at least 10% of its revenue from Mexico. Higher tariffs could disrupt the company’s supply chain and weigh on its share price moving forward.
Much like Ovintiv, if Mexico raises duty on all imports from the United States, BorgWarner’s products will no longer be able to remain as competitive in that country as they have been so far.
Ultimately, a trade war could mean contracting market share and revenue for BorgWarner, whose top line has already been a disappointment for investors.
In late October, BWA reported $3.45 billion worth of net sales – significantly below the $3.53 billion that experts had forecast.
On the plus side, however, BorgWarner stock currently pays a dividend yield of 1.41% which makes it attractive for investors wanting to set up an additional source of passive income.
Wall Street analysts also currently have a consensus “overweight” rating on the Michigan-based automotive and e-mobility supplier.
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