The 2025 trade war, under President Donald Trump, has been a high-stakes economic battle, reshaping global trade dynamics with bold tariff policies and strategic economic maneuvers. In a decisive move, Trump threatened a staggering 200% tariff on wine, champagne, and other luxury alcoholic beverages from France and the EU, a powerful counter to the retaliatory measures imposed by Canada and the EU in response to the United States implementing a 25% tariff on steel and aluminum imports. The administration’s aggressive stance is set to escalate further, with broad and sector-specific tariffs looming on April 2, amplifying market volatility and uncertainty.
While these trade disputes create significant risks for businesses with global supply chains and international market exposure, not all companies are equally affected. Certain businesses, like Leidos Holdings Inc. LDOS, remain highly insulated due to their focus on government contracts, national security, and IT modernization, making them a resilient investment choice amid trade wars.
Why is LDOS Insulated From Trade Wars?
Leidos stands out as a stable and defensive investment in an era of escalating trade conflicts. Several key factors contribute to its insulation:
Government Contracts Provide Stability
Leidos' primary revenue stream comes from long-term contracts with the U.S. government, particularly in defense, intelligence, and homeland security. Unlike companies reliant on international trade, Leidos benefits from stable funding, bipartisan political support, and minimal exposure to tariff-related disruptions. The company's fourth-quarter fiscal 2024 earnings report highlighted a robust backlog of contracts, ensuring consistent cash flow.
Minimal Exposure to International Tariffs
Leidos' operations are predominantly U.S.-focused, with limited reliance on foreign suppliers or international markets. In contrast to industries affected by import/export tariffs, Leidos’ core business—providing IT solutions, cybersecurity, and defense services—is largely immune to trade barriers. This minimizes the risk of increased costs associated with tariffs.
Strong Presence in National Security and Defense
The U.S. government prioritizes defense spending regardless of trade policies. The fourth quarter of fiscal 2024earnings callemphasized Leidos' role in critical national security projects, including the Defense Enclave Services program and advanced autonomous defense systems. With continued geopolitical instability and increased government focus on military modernization, Leidos is positioned to benefit from sustained federal spending.
Expansion in AI, Cybersecurity, and Automation
Trade wars often target goods and raw materials, but Leidos' focus on digital transformation, AI-driven analytics, and cybersecurity shields it from such risks. The company's North Star 2030 strategy emphasizes innovation in AI and automation, areas that are less vulnerable to trade conflicts and more driven by government demand.
Limited Dependency on Global Supply Chains
Trade disputes frequently disrupt supply chains, resulting in delays and increased costs for companies that rely on imported components. Leidos’ business model—centered on software, IT services, and government solutions—does not depend on complex international supply chains. This makes it far less susceptible to the logistical challenges affecting other industries.
Resilient Financial Performance
Leidos' strong financial performance reinforces its status as a stable investment. The company reported fourth-quarter fiscal 2024 revenues of $4.37 billion, a 9.7% year-over-year increase, and surpassed the Zacks Consensus Estimate of $4.12 billion. Additionally, its adjusted EBITDA margin of 12.9% demonstrates strong profitability, even amid economic uncertainty. With a proactive share repurchase program exceeding $850 million in 2024, Leidos showcases financial discipline and investor confidence.
Forget Trade Tensions: Bet on LDOS Right Away?
It has been apparent that amid escalating global trade tensions and their impact on financial markets???, Leidos stands out as a resilient investment, with its stable government contracts ensuring consistent revenue and protection from market volatility.
The stock is also relatively undervalued, trading at a forward 12-month price-to-earnings (P/E) of 12.99x. This figure is below the broader industry average of 22.55x. It is higher than other industry players such as Lockheed Martin Corp. LMT and Northrop Grumman Corp. NOC, which trade at 16.94x and 17.36x P/E, respectively.
Image Source: Zacks Investment Research
Thus, investors building a portfolio of stocks to stay well-insulated from trade-war-induced market uncertainty can bet on the undervalued stock, which currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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