By Teresa Rivas

With a trade agreement with the U.K. on the books, investors are feeling hopeful more meaningful deals that could follow, particularly with China. That could boost a number of consumer names.

J.P. Morgan analyst Christopher Horvers examined the tariff-exposed stocks he covers -- excluding companies that benefit from the levies such as auto-parts retailers gaining from levies on new vehicles, Walmart, and Costco Wholesale -- by four criteria. He looked at how much they depend on Chinese goods, the price increases they would need to offset tariffs from a gross-profit dollar perspective, their valuations compared with historical ranges, and their implied earnings.

Seven names stood out after weighing those factors: Best Buy; Wayfair; RH, the parent of Restoration Hardware; Mattel; Academy Sports and Outdoors; Dick's Sporting Goods; and Floor and Decor.

"Amongst the names above, which are all biased upward, on the quality front, the easiest to buy is Floor & Decor, especially considering pricing power, housing bouncing along the bottom, and share gains from potentially highly-disrupted smaller players," wrote Horvers. "We also continue to believe that Wayfair remains very misunderstood by the market (they don't own inventory) and is a stock that simply gets exploited during risk-off periods."

Mattel's dependence on Chinese toys, and the fact the stock price already reflects some of the worst potential tariff-related effects -- some forecasts show earnings might be 30% below the current consensus call -- set the shares up for a gain from a deal. Likewise, shares of RH, Academy Sports, and Dick's are discounting roughly 20% declines in earnings per share.

"Best Buy is a long-term winner though it is also a company that tends to guide very prudently and earnings are ahead (i.e., it needs more China clarity than the rest, in our view)," Horvers said.

Any good news would be welcome for most of these stocks. They have performed poorly this year as tariffs have dominated the financial news.

RH shares are down more than 50% since the start of the year, while Academy Sports is off more than 30%. Wayfair and Floor and Decor have slumped around 25%, Best Buy is off nearly 20%, and Dick's is down 16%. Only Mattel's 2% decline puts it ahead of the broader market.

These stocks aren't alone. The SPDR S&P Retail exchange-traded fund has tumbled more than 11% this year, while the Consumer Discretionary Select Sector SPDR ETF isn't far behind, with a loss of almost 10%.

Although many companies diversified their supply chains during the previous round of tariffs during the first Trump administration, most still buy from China. Any deal would be good news for a number of retailers, potentially reducing the need for price increases that would hurt demand.

Write to Teresa Rivas at teresa.rivas@barrons.com

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May 09, 2025 13:55 ET (17:55 GMT)

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