Trade tensions are dominating the headlines and providing an increasing source of worry for investors. If President Trump follows through on recent threats, new tariffs eventually will be imposed on $781 billion worth of U.S. imports, representing 27% of the total, Goldman Sachs reports. Given the likelihood of retaliation by countries whose exports to the U.S. are being targeted, Goldman suggests that investors look to U.S. companies that derive close to 100% of their sales domestically. This is the first of two stories that Investopedia will devote to this report.

Among the 50 stocks in Goldman's Domestic Sales basket are these seven, in the transportation, steel, technology and banking industries:

Stock Ticker Non-U.S. Sales Gain Since May 31
CSX Corp. CSX 0% 8.2%
Fiserv Inc. FISV 5% 6.7%
J.B. Hunt Transport Services Inc. JBHT 0% (4.6%)
Norfolk Southern Corp. NSC 0% 8.1%
Nucor Corp. NUE 0% 7.2%
Paychex Inc. PAYX 0% 8.5%
SunTrust Banks Inc. STI 0% 7.6%

Sources: Goldman Sachs U.S. Weekly Kickstart report dated July 20; gains are computed through the July 24 open using adjusted close data from Yahoo Finance.

By comparison, the S&P 500 Index (SPX) is up by 4.3% over the same period. While J.B. Hunt has lagged the S&P 500 since May 31, it nonetheless has outperformed on a year-to-date basis, 6.8% versus 5.5%.

Drivers of Outperformance

Goldman indicates that from the end of May through July 19, their full Domestic Sales basket has outperformed the S&P 500 by 130 basis points. They write that this group of stocks is "benefiting from a stronger U.S. dollar and above-trend U.S. economic growth, and is relatively insulated from trade risk." Moreover, they add that the basket offers an attractive valuation, with a forward P/E ratio of 17.8 times projected earnings over the next 12 months, versus 17.1 times projected earnings for the S&P 500 as a whole.

Remaining Risks

The stocks in Goldman's Domestic Sales basket theoretically face little or no direct risk from retaliatory tariffs, import restrictions or consumer boycotts abroad. However, some may suffer indirect impacts, to the extent that they sell to other companies whose own exports decline as a result of trade conflicts, a matter not remarked upon by Goldman.

Meanwhile, Goldman notes that tariffs imposed by the U.S. will increase costs for U.S. companies, and thus reduce profit margins. Overall, they estimate that imports account for roughly 30% of the cost of goods sold (COGS) incurred by the S&P 500. They add that transportation companies are among those industry sectors with the highest share of imported COGS. This could be an issue for railroads CSX and Norfolk Southern, as well as for trucking firm J.B. Hunt. 


CSX, per Seeking Alpha, is already the most cost-efficient railroad operator, yet it continues to make improvements. As a result, its operating profit margin has been trending upward in recent years, moving above 34% in the first quarter of 2018. Meanwhile, a solid business environment in its service area is driving increased shipment volumes. Zacks Equity Research indicates that a system designed to increase operational efficiency yielded cost savings of $460 million in 2017, and that the company is targeting an operating ratio of 60% by 2020, which implies an operating profit margin of 40%. Zacks adds that CSX is in the midst of a $5 billion share repurchase program running through the first quarter of 2019.


Paychex is a leading provider of services related to payrolls and other human resources functions, and should benefit from an increasing trend towards outsourcing, per another Zacks report. Moreover, Zacks adds, the company has a very strong balance sheet, with no long-term debt and $424 million worth of cash equivalents and corporate investments. This leaves it well-positioned to make strategic investments and acquisitions. Per MarketWatch, consensus estimates call for 9% EPS growth in fiscal 2019, while the company expects 11% growth versus fiscal 2018.