Supply-Chain Constraints Are Easing. 5 Stocks That Should Benefit.
Jan 10, 2022
Global supply chain limitations are beginning to relax, benefiting a diverse range of products.
Economic demand surged last year as a result of reopenings and monetary stimulus, catching businesses off a surprise and leaving them unable to expand production capacity quickly enough to satisfy demand. Now, evidence indicates that supply is finally catching up with consumption.
This week, the Institute for Supply Management reported that its manufacturing index fell to 68 in December from 82 the previous month. This evidence means that components are becoming more readily available for businesses to purchase, lowering the cost of those items. According to Wolfe Research, shipping container prices have plummeted more than 50% from their top in 2021, as assessed by a composite container rates index. This data also suggests an increase in the availability of commodities for transportation and sale.
"The supply-chain constraints that have resulted in increased delivery times and pricing may be lessening," Citigroup economist Andrew Hollenhorst recently wrote.
As enterprises regain access to the materials and supplies required to satisfy demand, they may be able to re-establish a path toward reaching their sales targets. Their profitability should improve in general, especially as their costs climb more slowly.
Stocks of goods-producing firms that rely on purchasing components to manufacture and sell their products—along with those that transport goods—should profit the most from a rebuilding supply chain. The following five equities are among those on Wolfe Research's list of direct supply-chain benefits. Four of the five equities have increased in value during the last two months, as the supply chain has begun to strengthen. Additionally, some of their earnings estimates have increased also.
General Motors
General Motors ( GM) stated in early December at the Credit Suisse Industrial Conference that the supply constraint has "steadied" and should improve during the year. Earnings projections for the automaker have already begun to rise. Since the end of November, when several firms began expressing optimism about the supply situation, analysts' 2022 earnings-per-share predictions have increased little, while 2023 projections have increased by 2%, according to FactSet. The stock has gained 15% since the beginning of November, but with annual earnings-per-share growth forecast to average 8% over the next two years, the price might continue to rise—especially if profit expectations continue to improve.
Aptiv
Aptiv (APTV), a $47 billion auto components maker, stated in November that fourth-quarter supply and manufacturing volumes should increase compared to the third quarter. Since the beginning of November 2023, earnings per share expectations have increased by 0.5 percent. Friday's broader market selloff resulted in a modest loss for the period, but this might represent a buying opportunity since the stock still has the ability to grow.
Stanley Black & Decker
Stanley Black & Decker (SWK) stated on Nov. 10 at the Baird global Industrials conference that regardless of supply and cost constraints, the business will raise pricing to safeguard profit margins. The company's 2023 earnings-per-share forecast has increased by 1.4 percent since early November, while the stock has risen by 5%.
Union Pacific
Union Pacific (UNP) stated at the Baird conference that "I believe that [the supply chain] will continue to improve over the coming year." The company's forecast for 2023 earnings per share has increased by 0.7 percent since immediately before the Baird conference, as management has stated that supply recovery will be slow. The stock is up 6%.
CSX
CSX (CSX), a rail transport peer, stated at the Baird conference that it, too, anticipates a recovery in supply. Analyst profit expectations have remained basically unchanged since then, albeit the stock has increased by 4%, indicating that the situation may soon improve
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"Lack of clean water will define the 21st century in much the same way fossil fuels did for the 20th century," explains Matthew Diserio, president of Water Asset Management, which oversees public and private equity funds. "The oil and gas industry provided many investment opportunities back then."
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And on Tuesday, after Russia's approval of legislation that allows local airlines to retain aircraft leased from foreign corporations, Maersk said that it is attempting to get tens of thousands of shipping containers out of the country.
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