3 tariff resistant stocks from Steven Cress

0:10Hey, everyone. Daniel Snyder here. Thanks for joining us. What's coming with tariff pressure down the line? August 1st is going to be here before we know it, and there is a lot to get through today. But luckily, we have Steven Cress joining us, our VP of Quantitative Strategies here at Seeking Alpha, who's going to walk you through three stocks here today that may be set up, perfect for the upcoming environment. Tariffs reignited. So when we were back in January, February, March, April, everybody was focused on tariffs and the potential impact that it could have on inflation and interest rates.

0:42And then we hit some geopolitical events in the Middle East. And it seems like most investors forgot about the tariffs and really just focused on those events. But as of recent days and weeks, the geopolitical events are starting to calm down. And all eyes are back on tariffs again. So tariffs back in focus. And after a 90 day pause, which President Trump announced quite a while back, we're coming up on the end of that 90 day pause on August 1st. So new rounds of tariffs are slated to be scheduled. And there's a lot of investor anxiety and uncertainty over that. Now, there have been some big achievements.

1:25China and the UK did reach deals. However, President Trump has threatened new tariffs on major, major trading partners, 35 % tariffs on Canada, 30 % tariffs on the EU and Mexico, and 25 % tariffs on Japan and South Korea. You'll see between the European Union, Canada, and Mexico, that those imports actually dwarf the imports that come from China. So that of these tariffs do take place, that is likely to have a major impact on many companies and consumers potentially forcing inflation up, which would not be good. So these moves coincide with what's already been lingering challenges for inflation.

2:12And as we're well aware of the geopolitical events that have taken place, so it's really a compounding effect on top of it. and it may have actually started to have an impact on numbers recently. So specifically, if we were looking at the June Consumer Price Index, we saw that it rose 2.7 % year over year with core inflation coming in at 2.9%. When that number came out, the markets retreated a bit, the Dow retreated, and many financials retreated on the back of that number. So we hit market highs around July 10th. And since then, we've sort of been teetering on the top with pullbacks. And when that number came out, that did not help.

2:54There are also on top of it with the country and the European Union potential tariffs, there are product specific tariffs as well. On copper, 50%, on steel, 50%, and on aluminum, 50%. So many of these have been announced with very few exemptions. So this, in addition to the country tariffs, these sector tariffs could have potential inflationary impact as well. So where does that bring us? It brings us into sort of a situation of turmoil and potential stagnation fears, which that is that for the most part has been on the mind of many investors and the marketplace. the likelihood of inflation starting to take up again and potentially unemployment rising puts us in an environment of stagflation.

3:48And that is definitely not good for the market. The June inflation report did, unfortunately, decrease the likelihood that we were hoping in September that there would be rate cuts. I'm going to show you a chart pretty soon that exhibits that. There is Fed chair uncertainty. there's the potential ousting of the Fed Chair Powell, which were two statements that came out from President Trump earlier today. Earlier in the day, he was giving an indication that there could be a sign that he would be firing Federal Reserve Chair Powell. But a little bit later in the day, he sort of pulled back on that.

4:24And it was helpful when he pulled back because when that first announcement came out, the market actually did start to sell off. So I think the market does not want to see Fed Chair Powell fired. But of course, President Trump wants lower interest rates, and that benefits the country in terms of their debt repayments making it much lower. Of course, the Fed wants to protect against inflation and unemployment. So they're going to keep those rates higher to make sure that inflation doesn't rear its ugly head. So as I mentioned, interest rate traders, just within a two-week period, a huge change in a perspective.

5:00as of July 1st, 93 % of the traders expected a rate cut in September. And fast forward just two weeks later to where we are now, only 56 % of those traders expect a rate cut in September. With that June CPI number and the Fed sort of holding fast to wanting to wait for more data to come out, I think the interest rate traders are saying they're not expecting a cut coming in September. So downstream impacts, what potentially could happen here? The tariff pass-throughs, goods most exposed to tariffs include many consumer discretionary companies being furnishings, appliances, apparel. All these actually have begun to see price increases at this point.

5:49And it either gets those price increases come to the consumer or they come to the company. Somebody's got to pay for it. Sometimes it's a combination of both. In terms of Q2 corporate earnings, early results in the earnings season have shown higher tariffs are compressing corporate margins, with many S &P 500 companies unable to fully pass through increased costs to consumers. So that means in many industries, the consumers aren't necessarily willing to pay up. So the companies are having to take this hit themselves. Most likely, as I said, we typically would see a combination of both the consumer having to pay more and some of it coming out of a company's profits as well.

6:31Spillover effect, we've seen this over the last four weeks. Export-driven economies such as Mexico and Europe are already feeling the hit with stock declines and a more cautious global outlook. And really, from January almost up into the last four weeks, we saw a lot of countries outside of the US doing well. And actually, Daniel, what I'm going to do is take us to the CK Alpha platform. This is the CK Alpha platform. I love this page. I probably look at it several times a day. This is a market data page where you could look at sectors or countries. And if we look at the one month return here, in the last couple of weeks, a lot of Middle East countries, the markets have done quite well.

7:11And that has been on the back of geopolitical events, stabilizing there. So obviously, prior to that, many of those countries were getting hit. But over the last four weeks, the markets have done very well in the Middle East. And then when you get down to the US, you can see that is had a fairly decent return, 2.83 % over the last four weeks. And then when we scroll down, we're seeing a reverse of what we saw earlier in the year. Many of the returns for countries in Europe are actually over the last four weeks are now in the red. So some of these trading partners where there's potentially gonna be these tariffs sticking as of August 1st, those markets are actually starting to pull back.

7:51If I click on the sectors page, you can see over the last month, technology has performed well, industrials and consumer discretionaries. If we take a look at the last five days, we can see technology has done well, but the rest of the sectors have actually pulled back quite a bit in the last five days. So I think that nice rally that we've seen in the markets, it might be to slow down here from what we've seen in the last five days. Outside of those countries, there are a number of industries, as you just saw, I pointed out with that sector data that are particularly vulnerable as well. So what stocks do we want to own?

8:32Okay. If we're going to be concerned about tariffs and potential inflation, it's probably a great period to focus on companies that are very US-centric. So what we're bringing forward here, our SA Quant team and strategy, we've identified three stocks to help hedge against shifting trade policies. In addition to being Quant strong buys, these stocks display one or more of the following characteristics. They have domestic revenue flows that are fairly significant. Two, less reliance on global supply chains. And three, policy incentives from the big, beautiful bill. So taking us to our number one recommendation of the three stocks, ATI Inc.

9:16It's got a market cap of$12.68 billion. So it's a fairly large company. Within the industrial sector, it ranks seven out of 615. So one of the reasons why we're not picking the number one, two, or three again, is we're trying to focus on companies that are somewhat tariff resistant. And this company is in the aerospace and defense sector. And within that industry, it actually ranks three out of 59. They provide components for commercial and military jet engines and airframes with the overwhelming majority of its manufacturing in the United States. In the first quarter of 2025, they showed a 9.7 year-over-year percent revenue increase, which was quite nice.

9:58They saw double-digit sales growth in their defense area. They saw 25, I'm sorry, the estimate from analysts is 25 % EPS growth going forward. That's a three to five year category. That is a huge earnings per share growth rate. In fact, it's at 117 % premium to the sector. They have a tremendous ROE at 25%. That's a 102 % premium to the sector. And in the last 90 days, eight analysts have taken up their earnings estimate for the company and nobody has taken it down. Coming to our number two stock, Daniel, is Sterling Infrastructure. Many people who are in the Alphapix community might be familiar with Sterling, ticker symbol STRL.

10:43It has a market cap of$7.25 billion and a quant strong buy rating. In the industrial sector, it currently ranks number 22 out of 615. And within its industry of construction and engineering, it ranks six out of 36. 100 % of their revenues come from within the United States. They have a strong domestic project backlog. And recent tax reforms from the big, beautiful bill for infrastructure will definitely help this company out. Strong Q1 growth with 29 % growth in their adjusted EPS. Talk about ROE. This one is really big. It's got a 37 % ROE. It's a 192 % premium to the sector. and just a huge, huge cash for share number at$21.

11:34Not to mention you got your favorite peg ratio on there as well. We do. Yeah. So, and I'm going to take you to that right now on the platform. So we're going on to the Hurl platform and we're on the stock page. You can actually see the stock is up 2 % today. So looking favorable. And I'm going to take you to that profitability metric. And what I'm going to show you here, actually, these are the factor grades. And these factor grades are actually sector relative. So when you're looking at valuation, growth, or profitability, you see that grade relative to the sector. So it's the industrial sector.

12:08So you know the profitability grade and the growth grade looks really good against the sector. And what's actually nice here, the growth grade itself was a C plus six months ago, and today it's a B plus. So the growth outlook has actually improved for the company. The valuation is a D plus. It was C six months ago. So a little bit more expensive, but still a strong buy. When I click into profitability, you will see all the underlying metrics that make up that profitability grade. And there's some great grades here, but really importantly, that cash per share at an A plus. So again, it gives you an instant characterization that that cash per share is far stronger than the rest of the sector.

12:49You can see a$21 versus the sector at$2.22. And all those metrics are like this, whether you're looking at the EBIT margin or you're looking at net income margin, you can see that grade gives you an instant characterization how the metric compares to the sector. So really helpful to pick out. Instead of you having to perform a lot of the research, we're doing it for you. What we do at CQ Alpha is we actually help to identify metrics and let you know how those metrics stand versus the sector. and you're actually not going to find that on a Bloomberg or a Faxet or Reuters. They provide you with the absolute data points, but we actually at CK Alpha interpret the data points for you to save you a lot of time in your research process.

13:35And as you mentioned, that PEG ratio coming in at 1.4 times, that PEG ratio is a combination of both valuation and growth together. So it really is just a nice, neat little package to look at the two blended. And often you can see PE that's very expensive, but if you look at the peg ratio, it's inexpensive. And for me, that's just a great characteristic to identify both of those characteristics together. So our number three pick today, Bank of America, getting away from the industrial stocks more in the financial region here. Of course, this is a tremendous company with a market cap of 347 billion.

14:15It is a quant strong buy. Within financials, it does rank 67 out of 689. and in its industry of diversified banks, it's 14 out of 66. The reason why we're picking it is 87 % of the revenue, 87 % of the revenues are from US comprehensive service offerings. So we are bringing Bank of America as part of that US-centric tariff-related segments where you could get a little bit of protection We continue to see increased concern and anxiety over tariffs. That's the whole focus of these three stocks today. Q2 double earnings beat for them, 4 % ROE growth. So that's the actual growth rate in the ROE, not the ROE itself.

15:05Net income margin at 29%. They have a whopping$4.55 billion in cash from operations. And the trailing three-month return for this stock is actually 22%. So over the last three months, the stock has performed quite nicely. You'll see the current valuation grade is D, so it's getting a bit expensive. But the growth is a B-, probability is A, momentum B-, and the analyst revisions are somewhat in the middle here. But you can see the performance over the last couple of months has been quite strong for Bank of America. So, Daniel, those are our top three choices. Here's sort of a summary page so you could look at the different factor grades.

15:46For most of them, the valuation is a little bit expensive, but typically they're worth it because there's such strong growth and profitability and momentum and positive at-all revisions. We like these three companies as being tariff-resistant stocks, and they should serve everybody well. And actually, Daniel, even if you're not looking for tariff-resistant stocks, I would say these companies have great fundamentals, and they all qualify as strong buys, irregardless of being tariff-resistant or not. And I believe we have an article that just came out today focused on these three stocks plus two additional ones.

16:21So if you want to take a deeper dive into it, please either do a search on CK Alpha by my name and that article will come up or you just type in Tariffs Reignited and the article will come up, best stocks to buy now. And if you could, if you're not following me, you will see the follow button. Just click on the follow me and you will get all my articles sent to your email going forward. And as Daniel mentioned, I try to be humble, but we have a really good track record of picking stocks with the quant system. And you'll get to see it firsthand if you do follow me. I got to hype you up a little bit.

16:55I mean, your track record's been great. Everybody, I can't encourage you enough. Follow Steven Kress's author profile here on Seeking Alpha. They put out articles all the time. I mean, it's just incredible how much content you're putting out there for everybody, Steve, and specifically at moments like this, where we have tariffs coming down the line, pharma and everything else, because we haven't even gotten all the tariffs on that yet. So there's a lot of stuff coming down the line, especially during these volatile markets. You're always a nice sound voice. I do have one question for you. And people look at the three stocks that you just presented and they go, well, Steve, these stocks, the share price are near the all-time highs.

17:31Is this actually the right time for these stocks? What would you say to that? Yeah, I would say you shouldn't really determine if the time is right for a stock by looking at the 52-week high or the 52-week low. That's not really an appropriate way to value the stock. When you want to look at if a stock is an appropriate buy or not, you have to look at its entire framework. And that's the valuation framework, the growth framework, the profitability framework. And you want to look at it versus its peer group. and that's what tells you of a stock is a buyer dot. You could see Sterling is near a 52-week high, but you could basically say, from this point in time here, when it was like$188, it was near a 52-week high, 185, 205, 204, 220, 228, 243 to where we are now.

18:23You would have missed out on all that upside if your perspective was, I was afraid to buy at a 52-week high. So that should not influence anybody whatsoever. Take a look at the valuation, see where it is versus the sector. For a stock that's got a valuation of a D or D plus, that could still qualify as a strong buy for us. If it's a D minus or F, that would not qualify. That would default to a hold. But you're looking at growth versus a sector that's stronger, profitability versus a sector that's stronger, momentum versus a sector that's stronger, and analysts taking up their revision. So the actual quantity of analysts that are taking up their earnings estimates is stronger versus the sector as well.

19:05So these are the important factors that you want to look at, whether it's at a 52-week low or high, that shouldn't determine it. But I will tell you, if you were to take a basket of 10 stocks that were at a 52-week low versus a basket of stocks that was at the 52-week high, you'd be far better off buying stocks that were at the 52-week high than the low. Because at a 52-week low, it's most often going to be a value trap and you don't want to get stuck in that trap. So Daniel, back to the deck. So let's talk about the pro-quant portfolio here. Maybe some people know about this already. Maybe some people don't.

19:36So let's go ahead and start from the beginning. All right. So I developed a new product about a month and a half ago. We launched it on June 1st. And as I mentioned earlier, we have a really good track record. Our concept of our GARP strategy has worked very well. But when you look at our track record, we're looking at about 350 strong buys, and that's not feasible. But what we decided to do is create a product where we're really focusing on our top decile of stocks in the quant system, because actually, if you just looked even at the strong buys, and you broke that down to deciles, the top decile has better performance than the bottom decile.

20:18So we developed this system where we're going to have a fixed portfolio of 30 stocks, and we're going to rebalance that on a weekly basis, which will provide our users with anywhere from one to maybe three new ideas a week. Some ideas weeks will be no new ideas. Others will be three. Sometimes it's just one. And that means as one name comes in, one name will go out. But we performed a backtest. And the backtest, which went to 2015 through May of 2025, absolutely crushed the S &P 500. We did it on an equal weighted basis. Since we have a fixed portfolio of 30 stocks and we're rebalancing it every week, we decided to use the S &P on an equal weighted basis and not a market cap weighted basis.

21:06They're still thoroughly close, but irregardless, our strategy completely crushed it. So it is a data-driven process. It's using our quant model and the portfolio itself is a systematic process. So for the most part, we're going with our top quant picks. We're letting the computer select the stocks. There is a human override. So if something were to be a little bit off, I would be able to observe it and make changes. But for the most part, this is a systematic model using our data-driven process. And as you can see, what we try to do is remove emotion from investing. And that's why we follow the data.

21:43And just using this strategy, it has worked out extremely well. So Daniel, this is the back-tested performance. The next slide that I'm going to show you are the actual results that we've had from May 30th to June 16th, about a month and a half. And you can see the pro portfolio in that very short period is up 16.87 % versus the S &P on an equal weighted basis of 3.26. If you looked at the S &P below, we actually took the S &P on a regular market cap weighted basis. That's up about 5.62%. So outperforming the S &P on an equal weighted basis, but still the pro quant portfolio, absolutely crushing it with its active return here of 16.87%.

22:28So if you don't want to do the research on your own, if you would like a product where we're giving you our top 30 stocks and we're paying attention and we're rebalancing on a weekly basis so you can have those fresh ideas and know what to buy and what to sell, The ProQuant portfolio is probably a place to be. And Daniel, maybe you could tell them a little bit about the pricing for the ProQuant portfolio. Yeah, so this is the exciting thing is ProQuant portfolio, obviously, for the people that are here that are already pro subscribers, you have access to this portfolio right now. If you are premium or alpha picks, this is an additional subscription.

23:04You can always reach out to our customer support team if you are a premium customer and have the rest of your membership credited to pro if you feel like joining. The great thing here is that for the first 30 days of using Seeking Alpha Pro, it only costs you$99. So that is a huge discount to the overall price. You can get in, you can see the ProQuant portfolio, see what it's all about, see the upcoming stock picks, the upcoming stock sells as well. And hopefully, we really hope that you have some really great success utilizing this product. Obviously, you've seen the back test. You've seen this ProPortfolio success of the system approach as of right now.

23:41Now, I will say as well as a disclaimer that this is a system, right? So you think about it, a computer is faster than a human. So it is not going to be 100 % the same results for you probably than the system because a computer can trade a lot faster than we can. But I encourage everybody to check it out. I mean, the community is growing there. Everybody is engaged in the analysis and the comment section as well. Just like if you're an Alphabetic subscriber, it's the same kind of deal. And the team is always here ready to help. So hopefully that helps. All right. And I think just to sort of finalize it, you may be aware there's another product that we have that's called AlphaPix.

24:17So I just want to provide you with a couple of the differences. As I mentioned on the pro quant portfolio, it is 30 equally weighted positions. With AlphaPix, we introduced two new ideas a month. So that portfolio could actually be far larger than 30 stocks. It could be 40, 50 or 60 stocks at any given time. where the pro portfolio will always be 30 stocks, unless we're sort of midweek and there's a sell. So it would drop down, but on the rebalance, it would bring it back to 30 stocks. And that rebalance occurs every Monday at 9.30. With AlphaPix, it is on the first of the month or the 15th of the month are the trading days closest to that point.

24:58The stock universe is much larger for the pro portfolio because we're looking basically at all ADRs, all market cap levels, all US securities. With AlphaPix, the market cap has to be about 500 million. And it's predominantly US stocks. The only ADRs would be primarily listed USRs and ADRs. And there's not many of those. The share price minimum for AlphaPix, we're not going to pick stocks that are under$10. There is no share price minimum for Pro. And the trade alerts here are on a weekly basis, where with AlphaPix, it's on the 1st and the 15th of the month. Turnover has definitely got a higher frequency with a pro portfolio than it does with the AlphaPix.

25:43So you have to decide, do you want a full portfolio of 30 stocks? And do you want that rebalanced on a weekly basis where we're letting you know what the next best quant stock is? Or if If you want something at a little bit of a lower pace and you're happy just getting two ideas a month, AlphaPix would be the right product. Just a reminder, anything you hear on this podcast should not be considered investment advice. This is for entertainment purposes only, and you should seek advice from a licensed professional before investing. If you enjoyed the episode, leave a rating or review on your favorite podcasting app.

26:17And we'll see you soon with a new episode.