Buy these cheap stocks with high cash levels as new Trump tariffs loom, UBS says

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Buy these cheap stocks with high cash levels as new Trump tariffs loom, UBS says

President-elect Donald Trump’s tariff plans could weigh on the broader stock market, but some attractively valued names with strong cash levels could withstand the pressure, according to UBS. “U.S. equities have rallied with renewed momentum into and since the elections on expectations that a Trump presidency will see through large corporate tax cuts and company-friendly deregulation,” analyst Michel Lerner said to clients Thursday. “The rally overlooks the potentially negative knock-on implications of tax cuts and tariffs on corporate performance and valuations.” The former president has vowed on the campaign trail to implement a universal tariff of at least 10% on goods arriving to the U.S. and at least a 60% tariff on goods from China specifically. If implemented, these levies could drag on the economy and the market. “Fundamentally, equity markets do not like tariffs and the economic uncertainty of trade wars,” Lerner also said. “Whether or not they directly caused a spike in the U.S. market implied discount rate, large U.S. tariffs on imports — the 1930 Smoot-Hawley Tariff Act, Section 301 of the 1974 Trade Act and Reagan’s early 1980s import quotas — all coincided with a material move up in the U.S. market implied discount rate.” Against that backdrop, UBS looked for stocks that have high levels of cash and are attractively valued. These stocks also have dividend yields of more than 2%, offering a hedge to investors. Below are some stocks that made UBS’ screen. Payroll processing company Paychex turned up on UBS’ list. Shares are having a relatively strong year, up roughly 21% in 2024. The stock has a dividend yield of 2.7%. Bank of America recently highlighted Paychex in a report, noting that lower tax rates on corporations would be a “tailwind” for the stock. Indeed, Trump has proposed cutting the corporate tax rate from its current level of 21% to as low as 15%. “Our companies with particularly high US exposure would benefit most,” wrote Bank of America analyst Jason Kupferberg on Nov. 6, calling out Paychex as one such example. CVS Health , which also made the cut, has been in the red this year, seeing year-to-date losses of more than 27%. The stock has a dividend yield of 4.7%. This week, however, has been a positive one for the stock, as it’s risen more than 7% week to date. On Tuesday, the company, along with UnitedHealth and Cigna, sued the Federal Trade Commission , alleged that the agency’s case over high insulin prices in the U.S. is unconstitutional. Additionally, CVS earlier this week also struck a deal with activist Glenview Capital to give the investor four board seats. Meanwhile, home improvement retailer Home Depot has had a notable rally in 2024, seeing gains of more than 18% year to date. It has a dividend yield of 2.2%.

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