10 Stocks Feeling the Trump Heat (or Love!) - Part 2 (Nike, EU Autos, EV chargers, LVMH, CoreCivic)

Hello and welcome back for round 2 of what is a mini-series looking at some of the winners and losers since Donald Trump has come into office. It's been a pretty wild start to 2025, end of Q1. So we thought a good time to take stock on proceedings. So let's get a show on the road. And Nike, I think, is the first one.

Yeah, absolutely. Welcome. As you say, welcome to part 2. We had a pretty, um, eclectic mix of companies in part one. Definitely check out that episode. Tesla, law firms, Accenture, Chevron, all sorts of different companies. But we're gonna start with Nike. And again, we're trying to pick up on some key Trump US administration themes. And obviously one of the big ones is trade wars and tariffs and things like that. And we have to realize the effect of these tariffs on companies that have got extremely complex global supply chains. And what better example than Nike? So I've just got in front of me right now a share price chart of Nike showing that its shares have dropped to a 5-year low. I've also got to the right-hand side of my chart, I've got Lululemon shares who have popped 21% in the last 6 months. So, you know, it's a Nike is singularly performing very, very poorly relative to other companies in this space. But why? So firstly, global trade war. So we know that Nike gets a, well, has a heavy manufacturing presence in Asia, especially in China. So tariffs that have already come in and will come in in more force on April 2nd, These have led to higher production costs. What does that mean? When you've got higher supply chain costs and when you've got either tariffs or inflation in your supply chain, you can do two things, right? You can pass the cost on, or you can suck up the cost and accept a lower margin. So what does Nike do? Well, in the context of it losing market share, to the likes of Lululemon and, and, and actually a bit of a resurgence in Adidas as well. It's deciding to keep prices the same for consumers and just take the margin hit. So it's a really interesting strategic one in a hypercompetitive environment. And this is where we get into kind of Economics 101. When your product is relatively elastic, i.e., demand elastic, i.e., if the price goes up, quite a lot of consumers might shift to a rival brand, then you probably have to take the hit and just lower your profit margins. If your product is highly inelastic, i.e., you know, even if there's a 25% price rise, your consumers still come back for more because there aren't that many alternatives and there's very high brand loyalty, you can probably just pass the cost on. But obviously Nike's in this horrible position that it's getting squeezed from tariffs, higher supply chain costs, but it's also strategically bombed over the last few years. And we covered it in an episode, I think last year, where it had that awful strategic move to D2C, direct to consumer, through its app, taking shelf space off the major US retailers. That shelf space gets filled by its bigger competitors. So when it realizes that this D2C strategy isn't really working, well, they can't really roll back. So this has all culminated not only in some terrible financials, but also really, really weak forecasts. So in fact, back in June 2024, Nike warned shareholders of weaker than expected revenue growth. And then a couple of weeks ago, the latest big share price drop, Margin compression. Nike announced that its gross margins would drop 4 to 5%. That is a big drop. That flows straight through to your bottom line. That flows straight through to less profit at the end of the day. And this is a pretty bleak outlook. And I like Nike. I think it's a great, I think it's a great company, but Nike forecasted a mid-teens percentage revenue decline. That's unbelievable. So your revenue decline, 12.2% is what it's forecasting. So this is not a company in rude health, and the fact that tariffs have come in through its major kind of supply chain is not doing it any favors whatsoever.

Okay, so I'll quickly share a shopping tip here. I was in Sports Direct. If you're in the UK, You know what type of guy I am if I'm hanging out in Sports Direct. I am hunting down bargains. And I mean, we talk WHSmith, you know, we talk these other like high street brands in the UK. If you're American, this is where you source your bargains. So I was in Sports Direct with my daughter and I'll tell you what, there are some tasty pickups you can get there now because Nike, it seems, are so desperate for revenue. And they've probably like their infantry, they've just totally got it wrong in terms of that whole fashion trend movement that Adidas have dominated, I'd say in the last probably 2 years where Adidas has been ahead on every fashion trend curve almost. And Nike now, you know, I was in Sports Direct, they've obviously overflooded the market with trying to chase some of these fashion trends. And I picked up a pair of Air Force Ones. How much do you reckon?

Oh, usually what, they're £120, £130. How much did you pay?

£50. Oof, £50. I was like, yeah, take that. I'll even buy my daughter a pair.

You didn't buy me a pair.

But anyway, maybe that's my kind of treat. But, but you know, it's interesting. And the other thing I was going to ask you, As another question, when you think of Nike now, so I'm looking at it from non-strategy numbers perspective, from a marketing perspective. When you think of Nike, what athletes do you think of?

Well, you still think of Tiger Woods and Michael Jordan, right?

Right. And then you extend that, maybe Rafa Nadal, retired. Maybe, like, maybe Serena Williams, retired. Like, LeBron James. I mean, the guy's still rocking it at 40, but I mean, he's old now. And so, yeah, like you said, the Jordan brand, when I think Jordan line, I mean, look, I'm a bit of a Jordan junkie, so I've got a ton of it, but everyone I see who's also 40 years old has a lot of Jordan gear. I don't see young people really wearing a great deal of Jordan gear.

And it goes back and it's a really interesting one from us. You know, we're going a little bit away from Trump here, but probably for our benefit. It's a really interesting one when thinking about the efficiencies that you try to build in your supply chain. And obviously, you know, we talk a lot about economies of scale and having relatively large batch ordering. And if, you know, and if Nike's going to do a particular line of shoes or whatever, or whatever it might be, it has to go pretty big because its supply chains and manufacturing base are set up for that kind of pretty clunky mass manufacture, which in times of plenty, and when your brand is in vogue is absolutely fine, right? But in times where you're getting it a little bit wrong, and you're up against, obviously, you've got the Sheinification of, of kind of fast fashion, right? And there's companies that are much more nimble, much more reactive, much better at doing small batch manufacturing, and seeing what is flying off the shelf and then going a lot bigger. We saw this with the kind of streetwear movement of a few, few years ago. Nike has totally missed that boat. And then it's doubled down on its, its kind of brand dilution by flogging these shoes at bargain price in Sports Direct. You've got, you might be aware of a lot of the larger fashion retailers, if they've got excess stock, and it's a horrible, really, really unsustainable thing to do. Likes a Burberry, they just burn it, right? They don't want it to be seen in a discount retailer or, hey, you can pick up a Burberry Mac at 80% off in the summer sales. That's not what they want to do. So Nike has kind of doubled down on its error and it's looking like a bit of a dinosaur around a lot more nimble competitors. And it's, you know, shout out to Adidas, who should be a dinosaur as well, but it's just managed to hit on the right notes from a fashion perspective and from a trend perspective, and has definitely been clawing back market share.

That's right. The next trend, Steven, I'm going to pick you up a pair of Speedcats. So remember the F1-looking shoes, the boxing boot? That's what's next. Jesus.

Yeah, I won't wear them though.

All right, well, let's move on. So let's go from Nike to car manufacturers.

Yeah. So again, we talk a lot about tariffs and one of the biggest negative impacts of the Trump reign so far has been on European car manufacturers. So, I mean, I could pick any one of Stellantis, BMW, Mercedes-Benz, VW, Porsche as negatively affected by the tariffs that are going to be slapped on manufacturers importing into the US. And this is a real kind of bugbear of Donald Trump. He doesn't like the fact that millions and millions of cars, European manufactured cars, are being sold as relatively, you know, luxury brands in the US. And he thinks, look, you know, there's a trade imbalance, we need to sort this. So the share price impact of some of these companies has been quite staggering. So since the beginning of January 2024, so I'm going to wind back a little bit further than normal. Companies like Stellantis, which is the large European car conglomerate, down 44%. Porsche down 35%. BMW down 18%. These companies at— apps— VW down 9%. Stellantis is trading at a price-earnings ratio of 6 times. VW, 4.6 times. Mercedes, 5.3 times. So these companies are absolutely— they are shedding market capitalization because the US imported about 8 million cars last year, accounting for about 240 $1.2 billion. And, you know, and this is problematic. I'm actually going to do a bit of a quiz now because we haven't done a quiz in a while. So, I'm going to ask you, can you give me the top 3 European car manufacturers in terms of their total sales in the US? If you get it 1, 2, 3 right and in order, surprised?

I would say Volkswagen's got to be in there. Volkswagen's group. Every time you see US on TV, there's BMW. So those two, I guess Mercedes. You smash it. Mercedes would fit. Is Mercedes on its own or is that Daimler?

No, Mercedes-Benz on its own. So BMW is the largest European car exporter to the US, 362,000 cars last year. Mercedes-Benz, 342,000, VW, 330,000, and Audi a little bit further back, 227,000. So these, I mean, these are huge markets for European car manufacturers and getting that 25% tariff, again, either you suck it up in terms of margin and these businesses don't have particularly high profit margins, Or you try and put it onto the top line. And yes, relative to Nike, maybe a BMW, Mercedes, slightly more price inelastic because luxury cars tend to, you know, the kind of the buyer base is slightly less discerning or cost conscious, but still it's a huge impact and it just is a really good representation of the companies and indeed the countries that are caught in the crosshairs of this trade rebalancing that Donald Trump is trying to do. And I'm just going to ask one more question, another quiz question. So, can you name any or all of the top 5 countries in terms of trade, well, in which the US runs a trade deficit? So the top 5 countries that export a lot more to the US than they import, i.e., the subject of Donald Trump's ire.

Right. So basically, who is Donald Trump always complaining about?

Exactly.

Is another way of rephrasing that question. So the EU is probably number 1.

Yeah, we can call the EU a country.

Interesting political opinion from you out there, but So the, it probably, so the main tariffs has started with Mexico, Canada, and the EU. So I'm assuming that they're all exporters. I guess China is another one. Yeah, I don't know about another one.

So top 5. Yeah, you're kind of right. So in terms of individual countries, ex the EU, number 1, China, it runs a $270 billion trade surplus with the US. Number 2, Mexico runs a $157 billion trade surplus with the US. Number 3, Vietnam. Again, not really the topic of Donald Trump's eye yet, but maybe will be in the crosshairs. Number 4, Ireland, which is an interesting one. And then number 5, Germany. So in terms of the largest trade deficits, actually interesting enough, number 6 is Taiwan. Taiwan Semiconductor, et cetera. So really, really interesting to look at these trade deficits. By the way, many of you will know that the UK has a trade surplus with the US, i.e., the UK shouldn't be in the crosshairs of Donald Trump because we import more from the US than we export to the US. So let's hope that some of these tariffs on car companies, you know, we have Land Rover and things like that. Let's hope that we kind of dodge the bullet because we actually import more from the US than we export.

Is that because we actually don't make anything anymore?

Yeah. Yeah. It's not something to be particularly proud of, but you know what? We will take it.

It's funny, I was thinking of those car names and I know you've got a chart that you had in your notes. I just wonder someone like, particularly, you know, we were talking about the US in the previous episode and Boeing from a military defense alignment and the kind of the integration of politics within this. And someone like Volkswagen who've had a really rough time, they're such a staple brand of German identity that if their share price was depressed, it feels a little bit like the Deutsche play, Deutsche Bank back in 10 years ago when they dropped under €10. You're like, yeah, but Deutsche's never going to not exist and the government will make sure of that. Famous last words. But the idea that it feels like that Trump is a temporary thing in the long grander scheme of things. And if these share prices became mega depressed, at which point this is probably peak uncertainty of Trump. I'm not telling everyone to go out and buy Volkswagen shares, but you see what I'm saying?

I absolutely see what you're saying. And there are certain nationally significant brands that would be very, very hard for that country to lose, albeit depending on the mood music of the country at the time or the country's decision makers, politicians at the time. You know, we go, we wind back to the UK, 1980s, early 1990s, and there are a lot of marquee brands that just fell by the wayside. You know, our whole car industry, whether it was British Leyland or Rover, that you probably thought, gosh, Rover, that's never going to go anywhere. That just died because it just got outcompeted. So look, we're going to give you both sides of the argument. You can choose whether you want to invest in VW or not. You go for the long-term Anthony Cheung play or the is it another Rover Stephen Barnett play.

Alright, cool. Well, look, let's move on. We've got a few more to go. So what's next?

Yes. So this is again, this is another really interesting one in terms of where the Trump tentacles are landing. And this is another negative story, and it's all about a company called Blink Charging, and indeed its competitors ChargePoint and EVgo. Now, this is the fact that the Trump administration has significantly impacted EV charging companies by pausing the $5 billion National Electric Vehicle Infrastructure Program. Again, just wielding executive orders left, right, and center, just saying, look, nope, don't want to do it. This isn't what, this is not something that I believe in. And obviously there are plenty of companies who absolutely rely on the trend and the, and the, you know, and the subsidies and the, and the government backing of things like EV charging infrastructure. And one of the ones that I wanted to bring to your attention is a company called Blink Charging. Whose share price is down 44.4% over the last few months, over the last 6 months indeed. So this is again, when you are faced with this kind of volatility, when you are faced with an executive that is doing things that have significant consequences to your business model, one thing that I would really, really want to be is profitable and able to withstand, as you said, the kind of the short-term volatility and the 3 or 4 years where this stuff is probably going to hit at its worst, one would think. But unfortunately, companies like Blink Charging, in that kind of desire for scale, in a little bit of that desire to build out that technology, has never been profitable and has never been cash flow positive. And I was just looking at Blink's financial statements in preparation for this episode. In the trailing 12 months, so the last 12 months, it made $137 million of revenue and its loss on that, $143 million. So it's made a loss of $143 million on $136 million of revenue. Now that's chunky. I just want to get slightly technical for a minute, slightly kind of IBD technical. If you look in that income statement, this is very, very instructive. If you look in that income statement, there is a massive line item in there and it is $69 million. Of impairment of capital assets. So almost half of the loss is this thing called impairments of capital assets. Now that basically means, look, we bought companies for too much, right? And we've had to revalue them down, or we bought assets for too much and we've had to revalue them down, right? It's an accounting thing. So CFO Michael Rama in the Q4 earnings call said, this is non-cash reminder, non-cash. And that's why I have my cash base because obviously a company goes bankrupt because they run out of cash. They don't go bankrupt because they've revalued and impaired a particular asset that they've bought. So when looking at financial statements, I mean, this is not a pretty picture. And it also suggests that the valuation of the companies that this company Blinkist bought been significantly impaired, look a little bit more deeply at the kind of top line income statement and really start to get into, all right, what's a cash item? What's not a cash item? Even if you do that, by the way, this is still not a pretty picture. I would be very surprised if Blink was around in 3 or 4 years' time.

From a strategy perspective, surely the first thing to do, knowing when Trump was coming in, was to start lobbying heavily for, you know, ways and means to align themselves better with the objectives, goals of the administration. Surely that's something that they're doing.

Yeah. So they're very, very good point. They've just hired a lobbying firm to push the message that EVs can help the Trump administration achieve its goal of energy independence, right? So it's like, all right, how can we create an angle that this stuff actually aligns with your core principles? And maybe having Tesla in the game is, you know, and maybe having Elon Musk at the right hand is not a bad shout. But then maybe Elon Musk is saying, look, you know, Tesla's infrastructure is different from Blink's infrastructure and we are pretty happy here. Let's, you know, let's just let these companies die and then Tesla can take even more of a kind of market share over the EV infrastructure of the country.

What I would do is I would just go to Donald Trump Jr. and say, look, just put a little bit of your VC thing here. We'll sort something out. You speak to your old man, you know, we'll make some money.

Well, well, look, that actually leads on to my next story very nicely. So this is European luxury companies, LMVH, Kering, Hermès, Chanel. Going to focus more on LMVH, Moët Hennessy Louis Vuitton, full name. Down again, another negative, down 16% over the past 6 months. Because again, 20% tariffs on European imports creating major uncertainty for luxury goods company like LMVH. And if you think about it, so what Trump's trying to do with auto manufacturers is say, look, you gotta make your cars in the US. That's the most important thing. You know, if you don't, if you make your cars in Europe, you're gonna get tariff. Whereas the USP of the likes of LMVH is high-quality French manufacturing, right? Or high-quality Italian manufacturing. You can't move an Hermès manufacturing base to Texas, right? It's just not going to work. So what has Bernard Arnault, one of the richest men in the world and kingpin of LMVH, What has he been doing? Well, what has he and his kids been doing? Ponying up to Donald J. Trump. And I've just put a couple of pictures in my notes of Bernard Arnault and his kids at the inauguration. Bernard Arnault handing over a Louis Vuitton bag to Donald Trump at a factory tour in 2019. This is, this is about as cronyistic or corrupt as you can Imagine, and look, he's lost about $5 billion of his fortune because share prices have slumped on the back of this tit-for-tat or kind of tariff threat for LMVH. So what's Arnault doing? Well, he's saying to Trump, luxury fashion should be exempted from these tariffs. What is he also doing? He's using his kids possibly to get close to Donald Trump Jr. and try and kind of swing that influence. It all really just reeks, doesn't it?

So this is just Netflix in the making in the years to come. There's such little good subplots here. So yeah, I mean, look, that $15,000, $20,000 handbag, that's good value at 5 billion.

Oh, absolutely. Absolutely. It's absolutely remarkable, isn't it? And speaking of remarkable, I'm just going to finish this. This is the end of the two-parter. So well done for getting this far. And I said in my notes, finish with a positive, in brackets, or is it a positive? A little bit like the Boeing story at the back end of last episode. This is two prison operators, GEO Group and CoreCivic. Now, GEO Group share price is up 131% in the last 6 months. CoreCivic is up 60%. I don't even know if I have the energy to continue this story, but I think we all know what it's all about. So the Trump administration has had a positive impact on the private prison industry with mass deportation plans driving up demand for immigration detention facilities, which is the bread and butter of the likes of CoreCivic and GEO Group. So again, let's just, I think we've probably picked on 6 or 7 different Trump themes and how they are impacting different companies. Everything. From executive orders through to tariffs, through to Doge, through to not being particularly pro-environment. And we're finishing here with this kind of anti-immigration mass deportation move, again, signed through executive order that is going to leave a lot of people worse off, but it's going to leave the likes of GEO Group and CoreCivic a lot better off. If I, by the way, If I was in the pub with my friends and I had just made a load of money off Geo Group, I would not be shouting about it. That is kind of tainted, tainted profit from my perspective.

Yeah. A positive-ish, depending on what perspective, what side of the tape, what side of the jail cell you sit.

Yeah, exactly. And obviously by the time this podcast goes out, we will have had Liberation Day, April 2nd, so we'll probably do a follow-up episode on whether that is done, you know, what kind of shockwaves that has sent through the financial markets and obviously into companies as well.

Alright, thanks everyone for listening. Thank you as ever, Steven, for that two-parter. Really interesting. And yeah, I guess we'll do the same again, perhaps on the first half of the year. Oof.

Looking forward to it.

Alright, take care everyone.

Thanks, Ant.