Navigating Tariffs and Uncertainty: Finding Resilient Value in U.S. Stocks

Isaac LaneFriday, Jun 20, 2025 8:10 am ET
36min read

The U.S. economy is navigating uncharted

. Tariffs now stand at their highest levels since the Great Depression, with the average effective consumer tariff hitting 15.8% in 2025, fueling inflation, reshaping trade dynamics, and weighing on growth. Yet, amid this turbulence, opportunities emerge for investors willing to dissect sector resilience and apply disciplined valuation tools like discounted cash flow (DCF) analysis. Here's how to identify undervalued stocks capable of weathering—or even benefiting from—today's tariff-driven landscape.

The Tariff Landscape: Costs and Consequences

The expansion of tariffs to “steel derivatives” like appliances, coupled with steep hikes on textiles and apparel, has reshaped consumer prices. Shoes now cost 18% more, while new car prices are up 11.9%, eroding household purchasing power and slowing GDP growth by 1.5% in the short term. Yet, not all sectors are equally vulnerable. Non-advanced durable goods manufacturing (e.g., appliances, machinery) has grown by 3.1%, capitalizing on domestic demand for goods insulated from global competition. Meanwhile, construction and agriculture have contracted, victims of higher material costs and trade frictions.

The fiscal toll is stark: $2.3 trillion in tariff revenues over the next decade, but a $100 billion annual GDP loss by 2035. Yet, this environment isn't uniformly bleak. Sectors with pricing power, geographic flexibility, or exposure to domestic demand could thrive. Here's how to spot them.

Discounted Cash Flow: A Compass in Chaotic Markets

DCF analysis is critical here. With tariffs distorting traditional metrics like P/E ratios, investors must assess whether a company's cash flows can grow—or at least remain stable—in an environment of elevated costs and reduced demand. Key questions:
- Can the firm pass tariff costs to consumers? Companies in inelastic demand sectors (e.g., healthcare, utilities) or niche markets with little competition may retain pricing power.
- Is the business shielded from retaliatory tariffs? Firms with minimal exposure to China or other tariff-heavy trade partners gain an edge.
- Does the sector benefit from substitution effects? Non-advanced manufacturers supplying domestic markets may see gains as imports become prohibitively expensive.

A robust DCF model should factor in these variables. For instance, a company with 5% annual revenue growth and 10% free cash flow margins, discounted at 8%, might still offer fair value even if tariffs cut its long-term growth to 3%. The key is identifying where tariffs create moats rather than headwinds.

Sector Resilience: Where to Look

  1. Non-Advanced Durable Goods
    Despite tariffs on steel derivatives, companies producing appliances, machinery, or tools domestically may see demand rise as import alternatives vanish. A firm with a 15% DCF-derived discount to intrinsic value here could be a diamond in the rough.

XYZ Total Revenue

  1. Healthcare and Consumer Staples
    Healthcare providers and essential consumer goods companies face less price sensitivity. A pharmaceutical firm with 12% margins and steady drug sales could offer a DCF-derived upside of 20% if its valuation hasn't fully priced in inflation resistance.

MRK, PFE P/E(TTM)

  1. Software and Services
    Tariffs disproportionately hit physical goods, making software and services sectors less vulnerable. A SaaS company with recurring revenue and 40% gross margins might justify its high valuation if it can grow 15% annually—a scenario where DCF still supports buying.

ADBE Trend

Avoiding the Pitfalls

  • Construction and Agriculture: These sectors face material cost inflation and trade disruptions. Avoid unless the firm has a unique competitive advantage.
  • Tariff-Heavy Imports: Retailers reliant on Chinese imports or apparel distributors are at risk of margin erosion.

Investment Strategy: A Balanced Approach

  1. Focus on Domestic Winners: Invest in companies like non-advanced manufacturers that benefit from “Buy American” dynamics.
  2. Prioritize Pricing Power: Healthcare, utilities, and software firms can sustain cash flows through inflation.
  3. Use DCF to Filter Out Overpriced Momentum Stocks: Even in resilient sectors, some companies may already reflect tariff-related gains.

The Bottom Line: Tariffs aren't going away soon, but their impact isn't monolithic. By combining DCF rigor with sector-specific analysis, investors can identify undervalued gems in industries thriving despite—or because of—the new trade reality. Look beyond the noise to companies with durable cash flows and strategic positioning; they'll outlast the tariff storm.

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