Amid Ongoing Tariff Instability, These Are Two American Businesses Worthy of Investor Attention
In the coming months, the expiration of the 90-day pause on retaliatory tariffs with China on July 8, 2025, is set to cause uncertainty in the market, with potential implications for Progressive, the second-largest U.S. auto insurance provider.
The tariff pause expiry could lead to increased cost pressure for Progressive, as tariffs are likely to resume or rise, impacting costs and margins. However, recent earnings reports suggest that the company has shown resilience, with a 15% increase in net premiums earned and a 16% increase in the number of personal insurance policies in force, as reported in May 2023.
The market has demonstrated a pattern of volatility around tariff announcements. For instance, when President Trump announced a reciprocal tariff plan two months ago, the S&P 500 briefly plunged, but it has since recovered most of its loss. The market has shown resilience and recovery moves, especially on positive trade developments or easing tariff expectations.
Stocks have ticked towards new highs amid mixed tariff news but noted tariff-related costs ramping up in current quarters. The expiry of the tariff pause could potentially lead to increased costs related to imported goods or services, affecting the insurance sector indirectly, potentially squeezing margins.
For Progressive, the tariffs' expiration and potential tariff reinstatement or escalation post-July 8 could pose a challenge. However, the company’s recent strong premium growth and net income suggest it may have some buffers to absorb cost impacts in the near term.
Investor reactions will primarily be guided by the risks from tariffs combined with strong business fundamentals. Despite potential tariff vulnerabilities, Progressive and Berkshire Hathaway, with its recession-resistant collection of American businesses, remain strong long-term investment options.
It's important to note that even if a business is minimally impacted by tariffs, its stock price may still be affected if the trade war heats up. Some of Berkshire Hathaway's businesses and the stocks it owns have international exposure, potentially making them vulnerable to tariff escalation.
Progressive's use of technology in underwriting has evolved, and it has harnessed the power of generative AI to build its technology lead. This advantage, coupled with its primary focus on auto insurance, makes Progressive a significant player in the insurance industry.
The escalation of auto tariffs could negatively impact new car sales, which could affect Progressive, as new cars generally cost more to insure than older ones. However, the company's financial flexibility, with nearly $348 billion in cash on its balance sheet, provides unprecedented financial flexibility.
Investors should keep a close eye on tariff developments and their potential impact on Progressive and the broader market. Despite the uncertainties, the company's strong business performance and strategic positioning suggest it is well-equipped to navigate the challenges ahead.
- The tariff pause expiration might lead to increased costs for Progressive, as they may have to reallocate their finance resources towards covering the increased costs associated with resuming or rising tariffs, which could impact their profit margins when it comes to investing in their business.
- The company's recent strong financial performance, with a 15% increase in net premiums earned and a 16% increase in the number of personal insurance policies in force, could provide some buffers for Progressive to absorb cost impacts in the near term, should tariffs be reinstated or escalated post-July 8.
- Progressive's strategic positioning, such as their focus on auto insurance and the use of advanced technology like generative AI, positions them as a key player in the insurance industry and a potential long-term investment option, even in the face of potential tariff vulnerabilities and uncertainties.
