Chris Snyder, Research Analyst, Executive Director , Morgan Stanley
The Trump Tariffs are the largest single market dislocation since China joined the World Trade Organization.
Chris Snyder, CFA, is a Research Analyst and Executive Director at Morgan Stanley, covering U.S. multi-industry, which includes a wide range of verticals. Mr. Snyder and his team are known for their in-depth thematic work on U.S. Reshoring.
“…If you look at my companies, they continue to show pretty steady growth in that mid-single-digit range.
The reason my capital goods coverage has bifurcated versus manufacturing output is because these companies are efficiency providers and this is why we are positive on U.S. Industrials.
The only reason a customer upgrades a capital good is to drive some sort of efficiency.
That could be energy savings in the case of HVAC, it could be labor productivity in the case of automation companies.
All these companies have some efficiency value-add.
It’s usually cutting out electricity or cutting out labor.
And if you look, electricity and labor have inflated 30% versus 2019.
From the customer standpoint, when you’re doing your ROI and payback analysis, it’s just better than it used to be, because the costs you’re offsetting have now gone up 30%, and they’re still continuing to inflate at a faster rate than history.
Essentially, my companies are providing more value to the world and that’s a good thing.
Providing more value generates demand and allows more margin to accrue to them.
For example, if the paybacks on your HVAC system just got cut in half, I’m not going to let you take all of those economics.
I’m going to get a little taste myself.
Then, the second reason, and this is what our team is the most known for, is U.S. reshoring.
The U.S. industrial economy hasn’t grown in 25 years; since China joined the World Trade Organization in 2000, the industrial economy hasn’t grown.
That includes the capex that we’re putting into it to grow the fixed asset base and it also includes the production, like the widgets coming out of these facilities.
My companies have been fighting a zero-growth market for 25 years.
I believe that this is changing for a variety of reasons, and we see growth returning to the industrial economy.
That will allow our coverage to collectively grow topline and earnings at a faster rate than history.”
Trump Tariffs will benefit the US stocks that Chris Snyder and his team at Morgan Stanley covers.
“I certainly think industrials are well-positioned for tariffs.
If you step back, and you could say every end market, if the prices of the goods have gone higher, then the demand for those goods are less; that’s just the elasticity.
And it’s fair to say the same thing about industrials, but relative to, say, consumer or these other verticals, industrials have a very positive offset.
And that’s just that protectionism in tariffs, I believe, will drive more investment into the country, and that benefits my companies.
For example, the U.S. is about 55% of the revenue in my coverage.
The companies are multinationals, but the U.S. is their home market.
The U.S. only accounts for about 16% of global industrial production.
So, we’re just shifting activity to where they have the best market share, where they do the best margins.
That’s the positive offset, and I think it’s going to bring more investment into the country, not only for the companies that build this stuff, but also the companies that service the production or sell into that production thereafter.
That’s because you build these facilities, but then they’re here and that brings a long tail of opportunities after the initial capex or investment cycle.”
Chris Snyder and his team at Morgan Stanley believe the USA is will benefit from the Trump Tariffs with its unique consumption economics.
“It just felt like we came out of a 45-year period where global manufacturing capex just searched for low-cost labor.
Like that’s the motivation, I have to go find it.
The U.S. always loses when that’s the case.
Now, I think it’s increasingly driven by access to technology, capital, and power, and those are parameters where the U.S. will win.
So, I think, collectively, the U.S. is going to take share of capex.
Regarding a lot of these foreign countries, I think there will be a lot of complaints, and obviously foreign countries don’t like the tariffs, but they will continue to serve the U.S. market — they do not have a choice.
The U.S. accounts for about 30% of global consumption.
That’s equal to the EU and China combined. It’s the best demand region in the world.
The other thing that’s less appreciated is that it’s the best margin region in the world.
Certainly, all of my companies do the best margin in the U.S., but we’re talking to our international counterparts and digging up as many numbers on this as we can find.
For the most part, international companies also do their best margins in the U.S.
I think you would struggle to find any other country in the world where foreign companies are doing their best margin in your market.
I think it would be very difficult to find that.
If you think about the U.S., it’s the best demand region and it’s the best margin region.
If you raise the cost to serve it, it’s going to still be an important market that they have to attach themselves to.”
Humanoid robots are one sector poised to benefit from the Trump Tariffs.
“One, we’ve seen a lot of advancement on the HVAC and the cooling side.
Data centers play into that, with things like liquid cooling, and companies like Vertiv (NYSE:VRT) that can sell into the higher density AI data centers.
Also, on the automation side of the house, we published a very big report this week on humanoid robots, which some of our colleagues here at Morgan Stanley, especially on the auto team, have led the debate on.
Obviously, it’s early stage there, but to me that is something that everyone needs to be watching, because it really is going to dramatically change the landscape of global manufacturing.
Point one: If you think about it from a U.S. versus a low-cost manufacturer perspective, it will lower everyone’s cost curve.
But the U.S. factory workers make, say, five, six times as much as Asia counterparts, so the savings is much stronger here.
It is also a structural competitive advantage as we continually squeeze out labor.
Everyone saves.
The U.S. and Europe, and any developed region will save the most.
Point two, which I think is very interesting is, when we think about these humanoid robots, where are they going to be made?
I think they’re going to be made domestically. I think there’s going to be extreme sensitivity around these supply chains, and that’s going to drive more protectionism and investments in the U.S.
Point three is power.
The market is not thinking about this yet but the next thing we’re going to think about in manufacturing is power bottlenecks.
This is where the U.S. really stands out.
Electricity prices in the U.S. are about 25% cheaper than in Europe.
Asia pays about $14 per MMBtu to import liquefied natural gas — LNG — from us.
We pay about $3.50; they’re paying four times as much as we are.
Then, when we think about humanoids, the cost is powering them.
If you compare the U.S. to Asia, right now our workforce, humans, is a lot more expensive.
If you look out into the future and the biggest cost of the workforce is actually the electricity to power them, well, now the calculus has very dramatically changed.
Again, that’s very far looking out, of course, but manufacturing facilities are very long-lived assets.
These are mega-projects.
They take four or five years to build, and then they serve these companies for 30 to 50 years thereafter.
So, when you make these regional capex decisions, you’re very forward-looking, and have an appreciation of where the technology is going and ultimately what that means for the cost profile a decade or two down the road.”
The Top Three Trump Tariff trades recommended by Chris Snyder and his team at Morgan Stanley.
“Of the three stocks right now that we really would be recommending, the first one would be Trane Technologies.
I talked about this theme of being an efficiency provider. I think the value of efficiency has never been higher than it is right now, and there’s no company that plays into that better than Trane.
They are the HVAC technology leader.
They reinvest the most in the business.
They’re always the ones that are pushing the envelope on, on innovation.
When we think about the demand in the market right now, the reason it’s good is not because we’re building a ton of stuff. It’s because we’re seeing very proactive upgrades, because the paybacks have gotten so much better.
Those benefits primarily accrue to the company that is providing the most efficiency.
So we really like Trane.
After that, it would be Rockwell.
Rockwell is the U.S. leader in factory automation.
They’re the cleanest beneficiary of U.S. reshoring, of a Trump presidency and the opportunities that that brings.
And they’re coming out of a cyclical trough.
In fiscal 2024, they were negative 10% organic. We see really nice acceleration, orders turning the right way.
That’s another stock we very much like.
The third one would be Eaton (NYSE:ETN).
Eaton is the leading supplier of electrical systems and solutions in the United States.
They touch every good secular trend you could want.
They sell into reshoring, data centers, utility investment.
They really are checking all the big boxes.
And, particularly on the reshoring side, the power opportunity there is still underappreciated.
Everyone’s focused on data centers consuming electricity.
Data centers account for 4% of U.S. electricity consumption.
The manufacturing economy accounts for 26%.
And that manufacturing industrial consumption has been down since 2000 because we haven’t grown production.
If I’m right, and production returns to growth, structurally, you’re going to start to see the industrial economy pull on the grid as well.
And that’s coming off a much higher 26% starting point.
Then over time, as we layer in things like humanoids and robotics and just more automation equipment, the pull is going to go even higher.
Even on the power side, I still think it’s very much underappreciated. Everyone’s just so hyper-focused on data centers and I think they’re missing this, which is a great opportunity for them, of course.
But I think the manufacturing side is really important because it adds duration to it.
Everyone’s always worried: “What about when data center capex stops growing?”
But we have a very nice kind of off-ramp here that just adds duration to the positive demand story.”
Get the complete interview with Morgan Stanley Executive Director Chris Snyder, exclusively in the Wall Street Transcript.
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