Fading The (Brief) Tariff Relief Rally
The ostensible reason why the market rallied on Monday was the news from Friday night that the Trump administration was exempting items such as laptops and smart phones from its latest round of "reciprocal" tariffs on China. We decided to fade that rally for a few tariff-related reasons:
The reciprocal tariffs still apply to 78% of U.S. imports from China
The 20% fentanyl-related tariffs from March still apply to all U.S. imports from China.
Within the next month or two, the U.S. may levy additional, new tariffs on the electronics exempted from the reciprocal tariffs.
The Stocks We Bet Against
We decided to bet against three stocks on Monday. Below are their respective tariff vulnerabilities.
1. Apple, Inc. (NASDAQ:AAPL)
Tariff Exposure:
- 20% Fentanyl-Related Tariff: Apple’s products, including iPhones, are subject to a 20% tariff imposed in response to China’s role in the fentanyl crisis. ​
- Temporary Exemption from 125% Reciprocal Tariff: Apple’s products are currently exempt from the 125% reciprocal tariff on Chinese imports. ​Reuters
Future Risks:
- The administration is considering new tariffs targeting semiconductors and the electronics supply chain, which could affect Apple products in the near future. ​New York Post+1NPR+1
2. PVH Corp. (NYSE:PVH)
Tariff Exposure:
- 20% Fentanyl-Related Tariff: PVH’s apparel and accessories imported from China are subject to this tariff (PVH is the parent company of the Calvin Klein and Tommy Hilfiger brands). ​
- 125% Reciprocal Tariff: Additionally, PVH faces a 125% reciprocal tariff on Chinese imports, bringing the total tariff rate to 145%. ​
Implications:
- The combined tariffs significantly increase costs for PVH, potentially impacting profit margins and necessitating supply chain adjustments.
3. SolarEdge Technologies, Inc. (NYSE:SEDG)
Tariff Exposure:
- 20% Fentanyl-Related Tariff: Applies to SolarEdge’s imports from China. ​
- 34% Reciprocal Tariff on Solar Equipment: SolarEdge’s solar equipment imports from China are subject to this tariff. ​
- 50% Section 301 Tariff: A 50% tariff applies to Chinese solar cells and modules, affecting SolarEdge’s products. ​
Implications:
- The cumulative tariffs increase costs for SolarEdge, potentially affecting pricing strategies and competitiveness in the U.S. market.​
The Weakest Of Those Three Companies
Of those three companies, SolarEdge is clearly the weakest. Apple and PVH still look good on a fundamental basis (though the new tariffs aren’t priced in to most of their fundamental metrics yet). SolarEdge looks bad now, and will likely get worse given the new tariffs. Here are how each company compares on select Chartmill metrics:
Apple:
- Overall fundamental rating: 7
- Profitability: 10
- Growth: 5
- Valuation 3
PVH:
- Overall fundamental rating: 5
- Profitability: 6
- Growth: 4
- Valuation 8
SolarEdge:
- Overall fundamental rating: 2
- Profitability: 1
- Growth: 3
- Valuation 1
For that reason, we placed an additional, longer-term bearish bet on SolarEdge.
Zigging When The Market Zags
There are a few newer companies that look like they’ll be dominant players for years. We’ll be looking to add long positions to them on the next leg down. And if we get another rally in the near term, we’ll be looking to add short positions on other companies facing tariff or other headwinds. If you’d like a heads up when we place our next trade, feel free to subscribe to our trading Substack/occasional email list below.
And if want to just want to add downside protection on the next rally, as a reminder, you can download the Portfolio Armor optimal hedging app by aiming your iPhone camera at the QR code below (or by tapping here, if you’re reading this on your phone). Our app can help you find the least expensive hedges given your risk tolerance and time frame.
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