GRAPHIC-Stocks to watch as NAFTA's future remains in doubt

By Rodrigo Campos and Lewis Krauskopf

NEW YORK, Oct (Shenzhen: 000069.SZ - news) 18 (Reuters) - The future of the North

American Free Trade Agreement (NAFTA), a nearly 24-year-old

trade pact between Canada, the United States and Mexico, hangs

in doubt after the latest round of talks in Washington ended in

acrimony on Tuesday, casting uncertainty over a range of stocks.

NAFTA, long opposed by U.S. President Donald Trump,

eliminates most tariffs on trade between the three countries.

Although trade more than quadrupled between those countries

since 1994, Trump blames NAFTA for lost U.S. manufacturing jobs

and a trade deficit with Mexico.

REVENUE EXPOSURE

U.S. stocks with the most revenue exposure to their NAFTA

partners include Kansas City Southern (Frankfurt: 502665 - news) , Molson Coors

Brewing and Colgate-Palmolive Co .

Investors are positioning for the final outcome on NAFTA,

which could be negative for several sectors if the deal is

scrapped. Since Trump's election victory, Mexican shares with

the most NAFTA revenue exposure have far underperformed Canadian

and U.S. shares screened by the same measure.

Here are some of the most sensitive sectors and stocks:

AUTOS & STEEL

The Trump administration is proposing stricter automotive

content rules that require the use of North American-made steel,

aluminum, copper and plastic resins.

U.S. automakers and the U.S. steel industry are concerned

that changes to NAFTA could interfere with existing supply

networks.

"Decades have been spent optimizing supply chains and they

are very intertwined," RBC analysts said in a note on the sector

and NAFTA this month. "Even (Taiwan OTC: 6436.TWO - news) if a specific plant isn’t directly

impacted it could be indirectly impacted because of supply

constraints."

American Axle , which manufactures chassis modules

and other auto and truck components, Canadian auto systems maker

Magna International (Toronto: MG.TO - news) , Linamar Corp , and

Martinrea International (Frankfurt: 912842 - news) could be among the hardest hit.

"Our general view is that any disruption to NAFTA is

negative for autos," the RBC note said.

GROUND TRANSPORTATION

Perhaps no company has been in the NAFTA cross-hairs as much

as railroad Kansas City Southern. Cross-border revenue makes up

more than a quarter of its total revenue, according to its

second-quarter earnings presentation.

“We believe the market would punish KSU shares immediately

upon NAFTA collapse due to the uncertainty of the impact on U.S.

trade with Mexico," said Morningstar (NasdaqGS: MORN - news) analyst Keith Schoonmaker.

Shares (Berlin: DI6.BE - news) in Kansas City Southern have underperformed those of

rivals CSX Corp and Norfolk Southern since the

election.

Union Pacific Corp , the No. 1 U.S. railroad, derives

10 percent of its revenue from trade to and from Mexico,

Schoonmaker says. Canadian National Railway Co and

Canadian Pacific Railway are other railroads to watch.

Share (LSE: SHRE.L - news) in trucking companies such as Celadon Group Inc (Frankfurt: 889409 - news)

and Werner Enterprises (Frankfurt: 871329 - news) could also move on the

NAFTA outcome. One possible impact is the cross-border shipment

process could become less efficient, said Morningstar analyst

Matthew Young.

FOOD

The U.S. Agriculture Secretary told Fox Business last week

that NAFTA benefits Canada more than it does the United States,

singling out the dairy, wine and poultry industries.

Asked last week about a worst-case NAFTA scenario, U.S.

poultry producer Sanderson Farms Chief Executive Joe

Sanderson said tariffs on agricultural products going into

Mexico would be "bad for the industry, and be bad for Sanderson

Farms."

Canadian dairy producer Saputo Inc (Toronto: SAP.TO - news) , which also has

U.S. operations, could be hurt if the flow of U.S. dairy

products to Mexico and Canada is affected as prices inside the

United States could come under pressure, said a brokerage

research analyst who requested anonymity.

On the sweeteners side, financial services company Kepler

Cheuvreux earlier this year questioned the tenability of Tate &

Lyle's North American bulk ingredients performance

partly due to risk of the NAFTA renegotiation.

Shares of Constellation Brands Inc (LSE: 0REP.L - news) , which holds

rights to sell Mexican beer brands Corona and Modelo in the

United States, dropped 7.6 percent the day after Trump's

election, their biggest single-day loss in about 3-1/2 years.

Molson Coors , which imports Molson brands to the

United States from Molson Coors Canada (Toronto: TPX-A.TO - news) , slid 8.6 percent over

four days after the election.

ENERGY

Suncor Energy Inc (Frankfurt: SM3.F - news) and Canadian Natural Resources

Limited are among the top Canadian exporters of crude

to the United States and their stocks could suffer if the United (Shenzhen: 000925.SZ - news)

States were to impose tariffs.

But the Canadian energy industry doubts that the United

States would tax Canadian crude imports, a major source for U.S.

refineries.

AGRICULTURE

Agriculture exports for the United States are expected to

total roughly $139 billion in 2018, of which roughly 30 percent

is to Canada and Mexico, according to Jefferies analyst Stephen

Volkmann.

Should NAFTA falter, it could have implications for

agriculture equipment makers such as Deere & Co (Hamburg: 924235.HM - news) and ACGO

Corp as export demand for U.S. crops falls.

"Market expectations are for a significant rally in crop

prices and equipment sales, but fraying NAFTA ties pose a risk

to this recovery thesis," Volkmann said in a research note.

TEXTILES

An estimated $11.5 billion out of $26.3 billion of U.S.

textile exports go to Canada and Mexico, according to the

National Council of Textile Organizations.

"Cutting off that flow of goods or taxing that flow at a

higher rate is believed to be harmful,” said Stefanie Miller,

senior tax and trade analyst at Height Securities.

Canadian company Gildan Activewear (Toronto: GIL.TO - news) has 87 percent

of its revenue exposed to the United States, according to

Thomson Reuters (Dusseldorf: TOC.DU - news) data.

However, in a filing last month, yarn manufacturer Unifi Inc (NYSE: UFI - news)

said it anticipates that any modifications or updates to

the trade agreement "will not significantly impact textile and

apparel trade in the NAFTA region."

(Additional reporting by Christine Murray in Mexico City and

Solarina Ho and Fergal Smith in Toronto; Editing by Megan Davies

and Meredith Mazzilli)