A large number of large American corporations have based their revenue growth strategies on expanding dramatically in China, a market of seemingly limitless growth and a population of 1.4 billion - more than four times bigger than the U.S. But U.S. corporations' exposure to China has become a source of weakness, at least in the short term, as the trade war heats up between the world's two largest economies.
Morgan Stanley's US Equities Mid-Year Outlook warns that a diverse range of companies is at risk of seeing their revenue and stock prices fall as a result of the renewed tensions. The firm cites dozens of companies that are vulnerable, including these 10: General Motors Co. (GM), Ford Motor Co. (F), Nike Inc. (NKE), Tiffany & Co. (TIF), MGM Resorts International (MGM), Wynn Resorts Limited (WYNN), Boeing Co. (BA), FedEx Corp. (FDX), Intel Corp. (INTC) and 3M (MMM).
Tariffs also threaten to inflict broader pain on these companies and the overall U.S. economy, according to Morgan Stanley. "Demand destruction and ailing confidence increase the potential impacts well beyond other costs and would likely lead to an economic recession in our view," the reports says.
10 Blue Chips With High Revenue Exposure to Tariffs
- General Motors Co. (GM)
- Ford Motor Co. (F)
- Nike Inc. (NKW)
- Tiffany & Co. (TIF)
- MGM Resorts International (MGM)
- Wynn Resorts Limited (WYNN)
- Boeing Co. (BA)
- FedEx Corp. (FDX)
- Intel Corp. (INTC)
- 3M (MMM)
Source: Morgan Stanley
Scores of tech stocks have perhaps the biggest sales exposure to China, according to Morgan Stanley, including Apple Inc. (AAPL), HP Inc. (HPQ), Advanced Micro Devices Inc. (AMD), Nvidia Corp. (NVDA), and Micron Technology Inc. (MU).
The report also highlighted companies facing possible retaliatory measures from China, which could hurt their cost structure. Companies that have higher margin risk from rising costs due to extensive imports from China include General Motors, Cisco Systems Inc. (CSCO), Kohl’s Corp. (KSS), Advanced Auto Parts Inc. (AAP), and Arista Networks Inc. (ANET).
China Weighs on GM
GM is highly vulnerable, illustrated by the stock's 9% drop off its highs since mid-April. One factor has been the weakening economy in China, one of the automaker's biggest foreign markets. GM's sales slipped sharply starting in Q3 of last year as the automaker saw quarterly sales decline in China for the first time in least one year, per Reuters. The financial pressures are likely to rise as trade wars pressure both its costs and revenue.
Athletic Apparel Giant Nike
Nike faces similar exposure but has fared better thus far. In December, Nike reported better-than-expected quarterly results in which executives indicated that they weren’t experiencing any impact from the brewing U.S.-China trade conflict, per CNBC. Since then, management has continued to cite "continued momentum in China." But that momentum could stall soon. Analysts at Wedbush estimate that the world’s largest athletic apparel company sources roughly 25% of its goods from China, making it increasingly vulnerable, one reason the stock is down 7% in the past month.
If the trade conflict is resolved quickly, companies is such as GM, Nike, Tiffany and Apple are likely to see sales - and their shares - rebound. But if the war turns into a protracted conflict, many blue chip giants may be forced to diversify by finding new markets where they can both sell and source their products.