Navigating Trade Uncertainty: UBS Sees Contrarian Opportunities in Tariff-Troubled Sectors

The U.S. market has long been a barometer of global economic health, but in mid-2025, it faces a paradox: persistent trade tensions and geopolitical risks have created pockets of undervalued stocks in sectors like manufacturing and technology—precisely where UBS's contrarian investors are now eyeing opportunities. While headlines warn of tariff wars and supply chain disruptions, UBS's analysis suggests that companies with pricing power, global diversification, or exposure to secular trends like AI stand to thrive, even as near-term volatility persists.

UBS's Bullish Case: Risks Already Priced In?
UBS's latest market outlook, released in late June 2025, underscores a cautiously optimistic stance. The bank's strategists argue that many perceived risks—from the expiration of U.S. tariff pauses to geopolitical flare-ups—are already reflected in equity valuations. “Investors are overestimating the damage of trade skirmishes and underestimating the resilience of U.S. companies,” said UBS CEO Ralph Hamers in a recent interview. “The market's fear of tariffs has created buying opportunities in sectors where firms are adapting faster than anticipated.”

The key is to distinguish between sectors genuinely weakened by trade barriers and those unfairly punished by sentiment. Take manufacturing, for example: while automakers and industrial conglomerates have faced headwinds from tariffs on steel and semiconducters, UBS's research shows that companies with vertically integrated supply chains or offshore production hubs have maintained margins.

Contrarian Plays in Tariff-Affected Sectors
1. Manufacturing: Betting on Global Diversification
Companies like Caterpillar (CAT) and 3M (MMM) have long hedged against tariffs by shifting production to Mexico or Southeast Asia. UBS analysts highlight CAT's 20% margin expansion in emerging markets over the past three years, even as U.S. trade restrictions intensified. “These firms aren't just surviving tariffs—they're using them to accelerate strategic moves,” says UBS's head of equity strategy, Andrew Scott.

1. Technology: Pricing Power and Innovation as Shields
   While semiconductors and hardware stocks have faced cyclical dips due to trade-related inventory overhangs, UBS's data reveals a split: legacy players like Intel (INTC) struggle with commoditization, whereas AI-driven firms like NVIDIA (NVDA) or cloud-based companies like Snowflake (SNOW) are insulated by high demand and pricing flexibility.

2. Consumer Discretionary: The Resilience of Brands
   Luxury goods and consumer electronics companies, from LVMH (LVMUY) to Apple (AAPL), have historically shrugged off tariffs by passing costs to premium buyers. UBS's analysis of Apple's China sales post-2025 tariff threats shows only a 2% dip in demand, with iPhone prices rising 5% to offset costs—a testament to brand loyalty and inelastic demand.

Structural Tailwinds Underpin the Bull Case
Beyond sector-specific advantages, UBS emphasizes two macro trends that justify a bullish stance:
- Federal Reserve Policy: With inflation tame and a rate cut expected by year-end, borrowing costs remain low, supporting equity valuations.
- De-Dollarization Dynamics: A weaker U.S. dollar, as noted by UBS, could boost multinational firms' earnings by favoring exports and foreign revenue streams.

Investment Strategy: Pick the Adaptors, Not the Victims
The contrarian approach requires discernment. Avoid companies overly reliant on a single geography or commodity. Instead, focus on firms with:
- Global Supply Chains: Toyota (TM) or Siemens (SI) exemplify this, leveraging regional production to mitigate tariffs.
- AI or Automation Leadership: Companies like Microsoft (MSFT) or Roblox (RBLX) are embedding AI into core products, creating defensible moats.
- High Dividends with Pricing Power: Utilities like NextEra Energy (NEE) or telecom giants like Verizon (VZ) offer stability amid volatility.

Final Take: Trade Risks Are a Filter, Not a Roadblock
UBS's bullishness isn't blind to risks—the Ukraine war, Israel-Iran tensions, or a sudden Fed hawkish turn could all disrupt markets. Yet the bank's analysis suggests that these are “tail risks” already discounted into valuations. For long-term investors, the current environment is a chance to buy quality at a discount. As Hamers concluded: “The U.S. economy isn't collapsing—it's evolving. The winners will be those who see beyond the noise of tariffs and spot the innovators and globalizers.”

In short, the playbook is clear: let fear be your guide, but only to find the companies that trade uncertainty can't shake.