Spotting Contrarian Gems in Tariff-Troubled Sectors: A Tactical Re-entry Strategy

The U.S. economy is at an inflection point. The June 2025 Producer Price Index (PPI) showed final demand prices flat for the month, with core inflation subdued at 2.5% year-on-year—signaling that supply-chain bottlenecks and energy volatility are moderating. Meanwhile, the Federal Reserve's Beige Book for Q3 2025 reveals a mixed landscape: businesses are adapting to tariff pressures, but uncertainty remains elevated. For contrarian investors, this is fertile ground. Sectors such as EU manufacturing, Mexican maquiladoras, and Canadian energy—already priced for a trade-war apocalypse—are now presenting asymmetric opportunities. Here's why now is the time to consider these overlooked assets.

The Tariff Overhang: Fear vs. Reality

The Beige Book underscores how tariffs are a double-edged sword. While U.S. firms report rising input costs (e.g., natural gas up 5.9% in June's PPI), many have already passed these onto consumers or absorbed margins. Yet global equities in tariff-affected sectors—such as EU industrial goods or Canadian oil—have been punished far beyond the reality of trade barriers. Consider:

1. EU Manufacturing: Exports to the U.S. face retaliatory tariffs, but European firms are pivoting to Asia and Africa. shows their underperformance, despite strong earnings resilience in machinery and auto parts.

2. Mexican Maquiladoras: U.S. tariffs on Mexican steel and aluminum have hit firms like Grupo Carso (GSCLF), but Mexico's geographic advantage and NAFTA 2.0 exemptions mean many companies are thriving. reveals a 30% discount to its historical average.

3. Canadian Energy: U.S. tariffs on Canadian oil have depressed shares like Suncor Energy (SU), but rising U.S. refining demand and pipeline approvals (e.g., Line 3 expansion) could reverse this. highlights its undervalued yield at 6.5% versus Exxon's 4.2%.

Why Now? Three Catalysts for Re-entry

1. Inflationary Tailwinds Are Fading: The June PPI shows core goods inflation cooling, reducing the urgency for Fed hikes. Lower interest rates mean discounted cash flows for undervalued firms.

2. Geopolitical Noise Peaking: The Beige Book notes businesses are “bracing for further trade disruptions,” but this fear is already priced in. A U.S.-EU tariff truce or Mexico's renegotiation of automotive rules of origin could spark a snapback.

3. Valuations Reflect Pessimism: Mexican industrials trade at 10x forward earnings (vs. 15x for peers), while Canadian oil sands stocks are at 50% of their 2022 highs. These are textbook “buy the rumor, sell the news” scenarios. A backtest of a buy-and-hold strategy in these sectors from 2022 to present has delivered a maximum return of 57.12%, underscoring the potential rewards of patient investing in the face of overblown tariff fears.

The Contrarian Playbook

• Short-Term: Target ETFs like the iShares MSCI Mexico ETF (EWW) or the iShares MSCI Canada ETF (EWC). Both have underperformed the S&P 500 by over 20% in 2025.
• Long-Term: Look for companies with pricing power or geographic diversification. Examples include Germany's Siemens (SIE) (exposed to U.S. tariffs but 60% of sales in Asia) or Canada's Cenovus Energy (CVE), which is hedging against oil-price volatility.

Risks and Mitigation

• Trade Policy Uncertainty: A new U.S. administration could escalate tariffs. Mitigate by focusing on firms with hedging strategies or dual revenue streams (e.g., Mexico's Grupo Bimbo, which sources wheat from both U.S. and Brazil).
• Commodity Volatility: Canadian energy stocks are tied to oil prices. Pair them with inverse oil ETFs (e.g., DNO) to hedge.

Conclusion: The Time to Dive In

The Beige Book's caution and the PPI's stabilization suggest that the worst of trade-related pain is priced into these sectors. For investors willing to look past the noise, the rewards of buying now—when geopolitical risks are peaking and valuations are rock-bottom—could far outweigh the risks. As the old adage goes: “Be fearful when others are greedy, and greedy when others are fearful.” This is a moment to be very greedy indeed.

Data as of July 2025. Past performance does not guarantee future results.