Navigating Trade Tensions: UBS Identifies Contrarian Plays in U.S. Equities

As global trade tensions simmer and tariff uncertainties cloud the outlook, UBS Group's recent strategic moves and financial performance underscore a contrarian view: the U.S. economy remains a resilient growth engine, and selective equity exposure in underfollowed sectors could yield outsized returns. Despite near-term volatility, UBS's bullish stance on U.S. fundamentals—bolstered by strong capital positions, client inflows, and post-merger synergies—suggests that current market hesitancy is masking long-term opportunities.

UBS's Bullish Foundation: Capital Strength and Client Momentum

UBS's first-quarter 2024 results highlight its confidence in the U.S. market. The bank reported an underlying pre-tax profit of $2.6 billion, a 15% quarterly revenue surge, and net new assets of $27 billion in global wealth management. This growth, paired with a 26% reduction in operating expenses, reflects disciplined cost-cutting and robust client demand. CEO Sergio Ermotti has emphasized that resolving trade disputes could supercharge investment activity—a sentiment echoed in UBS's $34.89 average price target for U.S. equities, despite a cautious “Hold” consensus rating.

But beneath the surface, UBS's strategic focus on sectors resilient to trade friction offers a roadmap for contrarian investors. Let's dissect the opportunities.

Sectors to Bet On: Resilience Through Diversification and Innovation

UBS's research identifies industries where companies are proactively mitigating trade risks through supply chain diversification, R&D investments, and policy alignment. These sectors are underfollowed yet poised to thrive in a fragmented global economy.

1. Semiconductors: Beyond the U.S.-China Standoff

While the U.S.-China tech war dominates headlines, semiconductor firms with global supply chains and R&D redundancy are insulated. Taiwan Semiconductor Manufacturing (TSM), for example, has invested $100 billion in U.S. facilities while expanding partnerships in Europe—a dual-hub strategy that minimizes tariff exposure.

Contrarian Play: TSM's valuation remains reasonable despite its dominance in advanced nodes, offering a leveraged bet on the AI-driven semiconductor boom.

2. Renewable Energy: The EU's Green Pivot

The EU's Carbon Border Adjustment Mechanism (CBAM) and $900 billion fiscal stimulus for green infrastructure are fueling demand for renewables. First Solar (FSLR), a U.S.-focused solar manufacturer, benefits from CBAM compliance and domestic tax incentives. Meanwhile, BHP Group (BHP)'s African lithium projects and EV partnerships position it to capitalize on the energy transition.

Contrarian Play: FSLR's underfollowed status contrasts with its strategic advantage in low-cost, scalable solar solutions—ideal for utilities under CBAM pressure.

3. Logistics and Defense: Geopolitical Contingencies

Shipping giants like CMA CGM and AP Moller-Maersk (MAERSK) are leveraging AI to reroute around geopolitical hotspots, while defense contractors like Leonardo (IT) benefit from the EU's “ReArm Europe” initiative.

Contrarian Play: Logistics firms with flexible routing tech and defense players with EU-backed contracts offer asymmetric upside in a risk-averse market.

Data-Driven Contrarian Strategy: Buy the Dip, Focus on Long-Term Trends

While short-term metrics like UBS's 12.78% downside implied by its GF Value of $31.09 may deter investors, the fundamentals argue for patience. U.S. equities trading at a 15% discount to intrinsic value—as UBS's research suggests—present a compelling entry point.

Key Recommendations

• Overweight: Sectors with policy tailwinds (renewables, defense) and operational resilience (semiconductors, logistics).
• Underweight: Cyclical industries (autos, traditional energy) overly exposed to trade volatility.
• Use the Volatility: Dollar-cost average into ETFs like iShares Global Clean Energy (ICLN) or iShares North American Natural Resources (IGE).

Risks and Mitigation

Trade tensions could escalate, and some sectors (e.g., automotive) face near-term headwinds from chip shortages. Investors should prioritize firms with diversified supply chains, high ESG compliance, and cash buffers to weather shocks.

Conclusion: The Contrarian's Edge

UBS's bullish outlook isn't just about U.S. growth—it's about identifying companies that turn trade friction into a competitive advantage. By focusing on underfollowed sectors with structural tailwinds, investors can navigate the current uncertainty and position themselves for the next leg of the U.S. economic expansion. The time to act is now: volatility breeds opportunity, and UBS's research shows the rewards are well worth the risk.