Motley Fool Money: "Tariffs Become Reality" – March 4, 2025

Hosted by Dylan Lewis, Ricky Mulvey, and Mary Long

Introduction: Tariffs Take Effect

In this episode of Motley Fool Money, hosted by Ricky Mulvey alongside guest analyst Jason Moser, the primary focus is on the tangible impact of recently implemented tariffs. As the global trade landscape shifts, the discussion delves into the immediate consequences for businesses and investors alike.

Tariffs Implementation: A New Trade Reality

[00:31] Ricky Mulvey opens the conversation by addressing the activation of President Donald Trump's tariffs:

"President Donald Trump's 25 tariffs on goods from Canada and Mexico have taken effect. Today was the deadline. Now it's 20% on Chinese goods. That was up from 10 just a few weeks ago. And in response, we're getting some tit for tat, retaliatory tariffs. China announced those on agricultural products. Canada is going to tariff more than $100 billion worth of American goods over the next three weeks. That's according to the AP. Mexico President Claudia Sheinbaum says she will announce her response on Sunday." [00:31-01:20]

These tariffs mark a significant escalation in the ongoing trade tensions, with China increasing tariffs on goods from 10% to 20%, and Canada responding with over $100 billion in tariffs on American products. Mexico is also poised to announce its retaliatory measures, indicating a broader escalation in the trade war.

Impact on Businesses: Strategic Responses

[05:02] Ricky Mulvey shifts the discussion to how companies are adapting to the new tariff landscape:

"Taiwan Semiconductor announced that it is investing $100 billion on a new manufacturing plant in the United States. This is the largest single foreign direct investment in U.S. history." [05:02]

Jason Moser adds context by highlighting similar massive investments:

"Apple committing $500 billion here domestically over the coming four years, going to build out some server capacity in other facilities, and then also Eli Lilly committing to an additional $27 billion investment to build four new manufacturing sites here domestically." [05:48]

These strategic moves by major corporations like Taiwan Semiconductor, Apple, and Eli Lilly illustrate a significant shift towards domestic manufacturing. This pivot not only aims to mitigate the impact of tariffs but also aligns with the Trump administration's push for "Made in America" initiatives. Moser notes that such investments are part of a broader trend of companies diversifying their supply chains to reduce dependence on foreign manufacturing, particularly in China.

Earnings Spotlight: Target's Performance Under Scrutiny

The episode transitions into an in-depth analysis of Target’s recent earnings report.

[07:00] Ricky Mulvey cites Target's CFO, Jim Lee, highlighting softer performance:

"During February, we saw record performance around Valentine's Day. However, our top line performance for the month was soft as uncharacteristically cold weather across the US affected apparel sales and declining consumer confidence impacted our discretionary assortment overall." [07:00]

Jason Moser interprets these results, suggesting a dual impact of broader economic challenges and specific company issues:

"It's a fair say it's a little bit of both... weather is a very legitimate excuse. But in regard to Target, the consumer continues to spend cautiously... Consumers have become increasingly resourceful... That's pressuring Target a little bit." [07:00-08:18]

The discussion points out that Target faces stiff competition from retail giants like Walmart and Costco, compounded by rising inventory levels—which have increased by 7.1% year-over-year—posing challenges in clearing stock without impacting margins.

Investment Insights: Target as a Value Play

Ricky Mulvey explores the investment potential of Target amidst these challenges:

"This is really becoming a cash flow story, not a growth story... It has about 9 billion left in its authorization. And when you look at the chart long term, not the stock chart, but the earnings per share and the share count, you're seeing two, you're seeing two movements." [10:26]

Jason Moser concurs, categorizing Target as a value investment:

"To me, Target seems like a value play. It’s the kind of company that you want to buy on maximum pessimism... earning per share are up, share count declining... shares around 13 or so times trailing Earnings today, that's pretty darn low historically speaking." [11:26-12:25]

Moser suggests that while Target may not exhibit explosive growth, its steady earnings and strategic share buybacks make it an attractive option for long-term investors seeking stability and value.

Spotlight on Okta: A High-Flying Tech Player

Shifting focus, the hosts discuss Okta, a security verification company, which reported better-than-expected earnings.

[12:25] Ricky Mulvey highlights Okta's robust performance metrics:

"Okta actually jumping a rare green stock today on better than expected earnings... year on year revenue growth of about 13% and dollar based net retention at 107%." [12:25]

Jason Moser elaborates on these strong indicators, emphasizing Okta's expanding customer base and strategic partnerships:

"They are bringing folks in and expanding those relationships... 70% of their deals were partner influenced... revenue from Amazon Web Services marketplace grew over 80%." [13:16-15:02]

Moser underscores Okta's position in the mission-critical identity security market, noting its extensive integration network with over 7,000 applications and its potential to capture a significant share of the $80 billion market.

Concluding Thoughts: Navigating a Complex Trade Environment

As the episode draws to a close, Ricky Mulvey and Jason Moser reflect on the intertwined nature of global trade policies and corporate strategies. The implementation of tariffs has not only disrupted existing supply chains but has also spurred significant investments in domestic manufacturing and technology infrastructure.

Moser advises investors to remain vigilant and adaptive, emphasizing the importance of diversification and long-term value considerations in their portfolios. The episode underscores the critical balance between navigating immediate economic challenges and leveraging strategic opportunities presented by shifting trade dynamics.

Key Takeaways

• Tariffs Impact: The activation of Trump's tariffs on Canada, Mexico, and China has led to retaliatory measures, creating a challenging trade environment.

• Corporate Investments: Major companies like Taiwan Semiconductor, Apple, and Eli Lilly are investing billions in U.S.-based manufacturing to mitigate tariff effects and align with domestic production policies.

• Target's Performance: Target faces mixed earnings results influenced by weather, consumer confidence, and inventory challenges, positioning it as a value investment amidst competitive pressures.

• Okta's Growth: Okta demonstrates strong performance with significant revenue growth and customer retention, benefiting from strategic partnerships and a robust integration network.

• Investment Strategy: Emphasis on diversification, value-focused investments, and adaptability to evolving global trade policies are crucial for long-term portfolio resilience.

Notable Quotes:

• Ricky Mulvey: "Trade war is usually bad for everyone. [...] everybody's losing." [01:31]

• Jason Moser: "The longer [the trade war] goes on, the more problematic it can become." [01:31]

• Ricky Mulvey: "This is really becoming a cash flow story, not a growth story." [10:26]

• Jason Moser: "Target seems like a value play... shares around 13 or so times trailing Earnings today, that's pretty darn low historically speaking." [12:25]

• Jason Moser: "Identity security represents an $80 billion total addressable market opportunity." [15:02]

This comprehensive discussion provides investors with valuable insights into the current trade environment, corporate responses, and strategic investment opportunities, offering a nuanced understanding of how tariffs are reshaping the business landscape.