Graphic: Stocks to watch as NAFTA's future remains in doubt

Becle SAB de CV

19/10/2017 12:00

(Repeats story with no change to text) 
    By Rodrigo Campos and Lewis Krauskopf 
    NEW YORK, Oct 18 (Reuters) - The future of the North 
American Free Trade Agreement (NAFTA), a nearly 24-year-old 
trade pact between Canada, the United States and Mexico, hangs 
in doubt after the latest round of talks in Washington ended in 
acrimony on Tuesday, casting uncertainty over a range of stocks. 
    NAFTA, long opposed by U.S. President Donald Trump, 
eliminates most tariffs on trade between the three countries. 
Although trade more than quadrupled between those countries 
since 1994, Trump blames NAFTA for lost U.S. manufacturing jobs 
and a trade deficit with Mexico.  urn:newsml:reuters.com:*:nL4N1MM54J  urn:newsml:reuters.com:*:nL2N1MQ0D5 
     
    REVENUE EXPOSURE  
    U.S. stocks with the most revenue exposure to their NAFTA 
partners include Kansas City Southern  KSU.N , Molson Coors 
Brewing and Colgate-Palmolive Co  CL.N .  
     
    Investors are positioning for the final outcome on NAFTA, 
which could be negative for several sectors if the deal is 
scrapped. Since Trump's election victory, Mexican shares with 
the most NAFTA revenue exposure have far underperformed Canadian 
and U.S. shares screened by the same measure.  
       
    Here are some of the most sensitive sectors and stocks:  
     
    AUTOS & STEEL 
    The Trump administration is proposing stricter automotive 
content rules that require the use of North American-made steel, 
aluminum, copper and plastic resins.  
    U.S. automakers and the U.S. steel industry are concerned 
that changes to NAFTA could interfere with existing supply 
networks.  urn:newsml:reuters.com:*:nL2N1MO0VA  urn:newsml:reuters.com:*:nL1N1J91UJ 
    "Decades have been spent optimizing supply chains and they 
are very intertwined," RBC analysts said in a note on the sector 
and NAFTA this month. "Even if a specific plant isn't directly 
impacted it could be indirectly impacted because of supply 
constraints." 
    American Axle  AXL.N , which manufactures chassis modules 
and other auto and truck components, Canadian auto systems maker 
Magna International  MAG.TO , Linamar Corp  LNR.TO , and 
Martinrea International  MRE.TO  could be among the hardest hit. 
    "Our general view is that any disruption to NAFTA is 
negative for autos," the RBC note said.  
   
    GROUND TRANSPORTATION 
    Perhaps no company has been in the NAFTA cross-hairs as much 
as railroad Kansas City Southern. Cross-border revenue makes up 
more than a quarter of its total revenue, according to its 
second-quarter earnings presentation.  
    "We believe the market would punish KSU shares immediately 
upon NAFTA collapse due to the uncertainty of the impact on U.S. 
trade with Mexico," said Morningstar analyst Keith Schoonmaker. 
    Shares in Kansas City Southern have underperformed those of 
rivals CSX Corp  CSX.O  and Norfolk Southern  NSC.N  since the 
election. 
    Union Pacific Corp  UNP.N , the No. 1 U.S. railroad, derives 
10 percent of its revenue from trade to and from Mexico, 
Schoonmaker says. Canadian National Railway Co  CNR.TO  and 
Canadian Pacific Railway  CP.TO  are other railroads to watch. 
    Share in trucking companies such as Celadon Group Inc 
 CGI.N  and Werner Enterprises  WERN.O  could also move on the 
NAFTA outcome. One possible impact is the cross-border shipment 
process could become less efficient, said Morningstar analyst 
Matthew Young.     
    FOOD 
    The U.S. Agriculture Secretary told Fox Business last week 
that NAFTA benefits Canada more than it does the United States, 
singling out the dairy, wine and poultry industries. 
    Asked last week about a worst-case NAFTA scenario, U.S. 
poultry producer Sanderson Farms  SAFM.O  Chief Executive Joe 
Sanderson said tariffs on agricultural products going into 
Mexico would be "bad for the industry, and be bad for Sanderson 
Farms." 
    Canadian dairy producer Saputo Inc  SAP.TO , which also has 
U.S. operations, could be hurt if the flow of U.S. dairy 
products to Mexico and Canada is affected as prices inside the 
United States could come under pressure, said a brokerage 
research analyst who requested anonymity. 
     On the sweeteners side, financial services company Kepler 
Cheuvreux earlier this year questioned the tenability of Tate & 
Lyle's  TATE.L  North American bulk ingredients performance 
partly due to risk of the NAFTA renegotiation.  urn:newsml:reuters.com:*:nL8N1DA6BW 
    Shares of Constellation Brands Inc  STZ.N , which holds 
rights to sell Mexican beer brands Corona and Modelo in the 
United States, dropped 7.6 percent the day after Trump's 
election, their biggest single-day loss in about 3-1/2 years. 
    Molson Coors  TAP.N , which imports Molson brands to the 
United States from Molson Coors Canada, slid 8.6 percent over 
four days after the election. 
  
        
    ENERGY 
    Suncor Energy Inc  SU.TO  and Canadian Natural Resources 
Limited  CNQ.TO  are among the top Canadian exporters of crude 
to the United States and their stocks could suffer if the United 
States were to impose tariffs.  
    But the Canadian energy industry doubts that the United 
States would tax Canadian crude imports, a major source for U.S. 
refineries. 
     
    AGRICULTURE  
    Agriculture exports for the United States are expected to 
total roughly $139 billion in 2018, of which roughly 30 percent 
is to Canada and Mexico, according to Jefferies analyst Stephen 
Volkmann.  
    Should NAFTA falter, it could have implications for 
agriculture equipment makers such as Deere & Co  DE.N  and ACGO 
Corp  AGCO.N  as export demand for U.S. crops falls.   
    "Market expectations are for a significant rally in crop 
prices and equipment sales, but fraying NAFTA ties pose a risk 
to this recovery thesis," Volkmann said in a research note. 
     
    TEXTILES  
    An estimated $11.5 billion out of $26.3 billion of U.S. 
textile exports go to Canada and Mexico, according to the 
National Council of Textile Organizations. 
    "Cutting off that flow of goods or taxing that flow at a 
higher rate is believed to be harmful," said Stefanie Miller, 
senior tax and trade analyst at Height Securities.  
    Canadian company Gildan Activewear  GIL.TO  has 87 percent 
of its revenue exposed to the United States, according to 
Thomson Reuters data. 
    However, in a filing last month, yarn manufacturer Unifi Inc 
 UFI.N  said it anticipates that any modifications or updates to 
the trade agreement "will not significantly impact textile and 
apparel trade in the NAFTA region."    
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
NAFTA revenue exposure    http://reut.rs/2kYYMZJ 
NAFTA stocks v. the S&P 500    http://reut.rs/2kZ6rad 
Autos, Rails & NAFTA    http://reut.rs/2xOUl9Y 
Tale of two stocks: Constellation vs Tate & Lyle    http://reut.rs/2xPcLHt 
Kansas City Southern shares vs rail stocks    http://reut.rs/2xPAMye 
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 (Additional reporting by Christine Murray in Mexico City and 
Solarina Ho and Fergal Smith in Toronto; Editing by Megan Davies 
and Meredith Mazzilli) 
 ((rodrigo.campos@reuters.com; @rodrigocampos; +1.646.223.6344; 
Reuters Messaging: 
rodrigo.campos.thomsonreuters.com@reuters.net)) 
 
Keywords: USA STOCKS/NAFTA