Defensive Plays in a Volatile Trade Landscape: Hormel and Clorox Lead the Charge

The escalating trade-war volatility has created a stark divide among retailers: those clinging to outdated supply chains face existential threats, while companies with diversified strategies and inelastic demand drivers are thriving. As tariffs linger and global negotiations stall, investors must pivot toward defensive consumer staples giants like Hormel (HRL) and Clorox (CLX). These firms are not just surviving—they're capitalizing on the chaos.

The Tariff Tsunami: Why Retailers Are Breaking Waves

The U.S. tariff regime, now in legal limbo after a landmark court ruling, has unleashed economic ripple effects. Yale's Budget Lab estimates that tariffs have already reduced household purchasing power by an average of $2,800 annually, with clothing, food, and vehicles bearing the brunt. For retailers reliant on imported goods—think cheap electronics or foreign-made apparel—the pain is acute. Companies like MicroKits and Terry Cycling, which report tariff-related losses of up to $250,000 annually, exemplify the risks of overexposure.

But defensive staples firms are proving immune. Hormel and Clorox dominate markets where demand is unshakable: premium proteins and household essentials. Their strategies—global supply chain diversification, premium pricing power, and cash-rich balance sheets—position them as safe havens in this storm.

Hormel: The Protein Play That Keeps On Cooking

Hormel's stock has quietly outperformed peers by focusing on premium proteins and global diversification. Its flagship brands—SPAM, Jennie-O turkey, and Skippy—have pivoted to health-conscious trends like GLP-1 diets, which favor lean meats. Meanwhile, its supply chain strategy avoids overexposure to tariff-heavy sectors:

• Global Expansion: Hormel's 2025 sales in China and Indonesia are surging via partnerships like Garudafood, reducing reliance on U.S. commodity cycles.
• Cost Control: The Transform & Modernize (T&M) initiative targets $100–$150M in annual savings through automation and a new Memphis distribution center.
• Dividend Stability: A 2.3% yield, 80% higher than peers like Mondelez, signals confidence in cash flow.

Despite temporary hiccups in turkey supply chains, Hormel's Q1 results reaffirmed its fiscal 2025 outlook, with adjusted EPS guidance of $1.58–$1.72. The company's premium product mix—now 5% of retail sales—ensures it can weather tariff-driven inflation.

Clorox: The Essential Brand That Cleans Up

Clorox's dominance in household cleaning and hygiene makes it a textbook defensive stock. Its products are recession-resistant, with inelastic demand even as consumers cut discretionary spending. Key strengths include:

• Margin Resilience: Gross margins expanded by 240 basis points in Q3 FY2025 to 44.6%, marking the 10th straight quarter of margin growth.
• Cash Flow Machine: Year-to-date operating cash flow surged 94% to $687M, enabling dividend payments and strategic investments.
• Brand Loyalty: Trusted brands like Pine-Sol and Clorox bleach retain 80% market share, despite macroeconomic headwinds.

While Clorox lowered its sales forecast due to sluggish consumer spending, its adjusted EPS growth of 13%–19% for FY2025 underscores its ability to navigate tariffs. The company's focus on cost savings and ERP-driven efficiency will further insulate it from volatility.

Caution: Avoid Retailers Hooked on Imports

Not all retailers are so lucky. Companies with overexposure to tariff-affected imports—especially those in discretionary sectors—are vulnerable. Consider:
- Fashion Retailers: Clothing prices have jumped 15% since 2023, squeezing margins.
- Auto Dealerships: Tariffs have added $3,000 to the cost of a new car, deterring buyers.

Investors should steer clear of firms without pricing power or diversified supply chains. The writing is on the wall: tariffs aren't going away anytime soon.

The Call to Action: Pivot to Defensives

The trade war's prolonged uncertainty demands a strategic shift. Hormel and Clorox offer a rare combination of premium pricing power, global diversification, and cash flow stability—qualities that will only grow in value as tariffs linger.

For income-focused investors, Hormel's 2.3% yield and Clorox's 2.1% dividend provide steady returns. Growth investors can benefit from Hormel's 5% premium protein expansion and Clorox's margin-driven EPS growth.

The message is clear: in a world of trade-war chaos, bet on the companies that own the essentials. Hormel and Clorox are not just survivors—they're winners.

Act now before the next tariff shock hits.