The Canadian Stocks Worth Owning When a Trade War Hits

If there is one strange silver lining to the ongoing U.S. and Israel conflict with Iran, now well into its sixth week, it is that tariffs have taken a back seat. Earlier in 2025, Trump’s threats of tariffs on Canada were front and centre.

For a country that depends heavily on trade, that kind of rhetoric creates real uncertainty. Railways, exporters, and manufacturers all feel it. Even if tariffs are never implemented, the uncertainty alone makes it harder for companies to plan, invest, and allocate capital.

That said, this distraction will not last forever. Eventually, Trump’s attention will shift back to trade policy. And when it does, tariffs could once again become a source of volatility for Canadian markets.

There is not much you can do to control that as an investor. Staying diversified and sticking to a long-term plan is still the best approach. But it is also worth recognizing that some businesses are naturally more insulated than others.

One area that tends to hold up better is domestic consumer staples. Here’s why, and two stocks that could be worth a look.

Why consumer staples hold up during trade wars

Tariffs are essentially taxes on imported goods. They raise costs for businesses that rely on foreign inputs and can disrupt supply chains. That leads to higher prices, lower margins, and a lot of uncertainty around future demand.

Consumer staples operate differently. These are businesses that sell essential goods like groceries and household items. Demand tends to be steady regardless of economic conditions. People still need to eat, and they still need basic everyday products.

For Canadian grocery chains in particular, there is another advantage. Much of their supply chain is either domestic or diversified across multiple countries. They are not as reliant on a single cross-border trade relationship. Some products are sourced locally, while others come from regions outside the U.S., such as Mexico or international suppliers.

That helps reduce direct exposure to tariffs. They can also pass through some cost increases to consumers more easily than other industries, simply because their products are non-discretionary. It is not that they are immune, but they are generally more resilient.

Two Canadian consumer staple stocks to consider

Two names that stand out in this space are Loblaw Companies Limited (TSX: L) and Metro Inc. (TSX: MRU).

Loblaw is the dominant player, with a market capitalization of about $75 billion. Metro is smaller, around $20 billion, but still a major force in the Canadian grocery landscape.

Both companies fall into the category of low-volatility stocks. This can be measured using beta, which tracks how sensitive a stock is relative to the broader market, which for Canadian stocks is the S&P/TSX Composite Index with a beta of 1.

Loblaw’s five-year monthly beta sits around 0.41, while Metro’s is slightly lower at 0.39. That means both stocks have historically been less than half as volatile as the broader market.

On the surface, profit margins are thin, around 4.2% for Loblaw and 4.4% for Metro. That is normal for the industry. Grocery retailers have to deal with high inventory costs, labour, logistics, rent, and intense price competition.

What matters more is how efficiently they use capital. Return on equity gives a better picture here. Loblaw posts a strong 23.2%, while Metro comes in at 13.9%. These are solid figures and show that management is generating meaningful returns for shareholders.

Valuation is where things get more nuanced. Loblaw currently trades at about 25.7 times forward earnings. That is not cheap, but for a stable, dominant business, it is roughly in line with expectations. Metro looks more attractive on that front at 19 times forward earnings. You are paying less for each dollar of earnings, though the trade-off is a smaller geographic footprint and scale.

The post The Canadian Stocks Worth Owning When a Trade War Hits appeared first on The Motley Fool Canada.

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More reading

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Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.