Winners in the US-EU Trade Pact: Identifying High-Conviction Stocks in Tariff-Sensitive Sectors

The U.S.-EU trade pact announced on July 27, 2025, has rewritten the rules of engagement for transatlantic commerce. By capping tariffs at 15% on most EU goods—far below the 30% initially threatened—President Trump and European Commission President von der Leyen have averted a full-scale trade war while creating a new landscape of opportunities and challenges. For investors, this agreement marks a pivotal moment to recalibrate portfolios, shifting focus to sectors poised for margin expansion and undervalued plays that stand to benefit from the pact's fallout.

Strategic Sector Rotation: From Pain to Gain

The 15% tariff is a double-edged sword. While it stabilizes trade relations, it also imposes structural costs on export-dependent industries like automotive manufacturing. European automakers, including Volkswagen (VOW3.DE) and Stellantis (STLA), face a 15% tariff on U.S. exports, a rate that, though lower than the previous 27.5%, still erodes profit margins. Yet this pain has created an opportunity: European stocks, particularly in manufacturing and agriculture, trade at a discount relative to their fundamentals. The Stoxx 600, a broad European benchmark, is 2.3% below its March 2025 peak, reflecting lingering uncertainty. Now, with the tariff threat neutralized, the stage is set for a relief rally.

The pact's zero-tariff exemptions on critical goods—such as aircraft, chemicals, and semiconductor equipment—also tilt the playing field. These carve-outs favor companies with global supply chains and high-margin products. Meanwhile, the EU's $750 billion energy procurement from the U.S. over three years creates a tailwind for American energy firms and indirectly boosts European manufacturers reliant on stable energy inputs.

Undervalued Manufacturing Plays: Factories in the Spotlight

European automotive and industrial manufacturers are among the most compelling opportunities. Stellantis (STLA) and Volkswagen (VOW3.DE) are navigating a complex transition: shifting production to the U.S. to avoid tariffs while investing in electrification. Despite these efforts, their current valuations reflect pessimism. Stellantis, for example, trades at a price-to-earnings (P/E) ratio of 8.5x, well below its historical average, as it grapples with $3.3 billion in restructuring costs. However, its strategic reallocation of production to the U.S. and a strong balance sheet position it to outperform in a post-tariff world.

Similarly, Volkswagen's operating margin has contracted to 4.2% in H1 2025, but its diversified portfolio—including Škoda's 8.5% margin and Porsche's luxury brand premium—provides a buffer. The company's $1.2 billion investment in CARIAD, its software division, could unlock long-term value as it transitions to software-defined vehicles. At a P/E of 9.8x, Volkswagen is a high-conviction buy for investors betting on margin normalization.

Agricultural Sector: A Hidden Gem in the EU

The agricultural sector, often overlooked in trade debates, is another winner. The EU's removal of retaliatory tariffs on U.S. products like bourbon and soybeans creates a more level playing field. European agribusinesses, however, are also beneficiaries. Karnov Group (KAR), a Nordic leader in legal and tax services, has seen its net income surge to 77.4 million SEK in Q1 2025, up from a prior loss. While not a traditional agribusiness, Karnov's expansion into rural property tax advisory services aligns with EU agricultural policy shifts, positioning it to capitalize on streamlined trade flows.

Meanwhile, Inwido (INWI), a Swedish manufacturer of windows and doors, exemplifies the potential for margin expansion in construction-linked agriculture. Its 25.86% gross margin in Q1 2025, coupled with insider purchases by director Per Bertland, signals confidence in its ability to scale. Inwido's focus on energy-efficient building materials—a critical component of EU climate goals—aligns with both regulatory trends and the trade pact's emphasis on energy transition.

Energy and Investment: A Symbiotic Relationship

The EU's $750 billion energy procurement from the U.S. is a game-changer for American energy firms but also benefits European companies that supply critical inputs. Maire S.p.A. (MAIRE), an Italian firm in the energy transition space, trades at a 39.8% discount to its estimated fair value. Its recent expansion into cybersecurity services and a follow-on equity offering suggest a pivot to high-margin sectors that cater to both U.S. and EU energy infrastructure needs.

The Road Ahead: Caution and Conviction

While the trade pact reduces immediate volatility, risks remain. Trump's 200% pharmaceutical tariff threat looms over the EU's 62% import dependency on European medicines. Similarly, unresolved steel and aluminum tariffs could reignite tensions. Investors must balance optimism with caution, focusing on companies with pricing power, diversified production, and regulatory alignment.

For now, the undervalued sectors offer a compelling case. European automakers and agribusinesses are trading at discounts that don't reflect their long-term potential. As the U.S. and EU finalize negotiations on steel overproduction and pharmaceuticals, early movers in these sectors could see margins expand by double digits. The key is to act before the market fully internalizes the pact's implications.

Conclusion: Positioning for the New Normal

The U.S.-EU trade pact is more than a political agreement—it's a catalyst for sector realignment. By rotating into undervalued manufacturing and agricultural stocks, investors can capitalize on a shift from protectionism to pragmatism. Stellantis, Volkswagen, Karnov Group, and Maire S.p.A. represent high-conviction plays in a landscape where margins are poised to widen. For those with a 12- to 18-month horizon, the reward for patience is substantial. As the transatlantic economic engine roars back to life, these names will be the ones turning heads—and returns.