I don’t ever willingly get fleeced, but this was a matter of pride.
Last holiday season, after a cruddy year of COVID and lockdowns, I wanted to do something nice for my kids. I printed out a picture of a Sony PS5 and proudly told them that – as soon as I could get my hands on one – it would be their gift.
But my oldest looked up at me and said, “Good luck. Maybe in a year or so.”
Well, it’s almost a year later… and I finally bought one. But I had to go to eBay and pay more than double the manufacturer’s suggested retail price (MSRP).
And I doubt I’m alone.
Many people are discovering that it has become nearly impossible to get a number of products. If you’re trying to buy a PS5, Xbox, computer, car, or home appliance… good luck.
It all comes down to supply chain problems.
So today, let’s break down the issues we’re seeing… and uncover the best way to profit from this devolving situation…
Stuck in Gridlock
Hi, I’m Jason Bodner, and I’m the editor of Outlier Investor. There, I use my nearly 20-years of experience on Wall Street – and my high-tech system for market analysis – to lead my readers to big profits.
Unlike traders, and even some investors, I like to look at the long-term picture. As I’ve shared in previous essays, I believe the stock market is the best place to create life-changing wealth. But our success deeply depends on placing our bets on the right companies at the right time.
That’s why it’s important to keep a close eye on big trends influencing the markets… like the current supply chain snarl.
More than 30 million tons of cargo are caught in gridlock off U.S. ports right now. And news headlines are already making dire predictions about the state of holiday shopping this year, predicting wide shortages.
My colleague Jeff Brown even shared that he’s ordered his turkey well in advance of his usual schedule.
But how did we get into this state of affairs? Before we can profit, we need to dissect some of the issues that led to this mess.
A Compounded Effect
In the movie Pulp Fiction, Mia Wallace (Uma Thurman) overdosed on drugs. In response, a bewildered Vincent Vega (John Travolta) plunges a needle of adrenaline into her chest, jolting her back to life.
The U.S. government did its own version of this scene last year.
When COVID hit, the uncertainty surrounding the disease led to lockdowns and job losses. In America, the government came to the rescue with its own version of adrenaline – the Paycheck Protection Program (PPP), multiple stimulus payments, and generous unemployment benefits.
And, of course, the money printing to pay for it…
The upside was that immediate disastrous economic consequences were avoided for most people. The downside was everything that came after.
We’re now dealing with a monster deficit and wicked inflation. Idling container ships are just the most visible symptom.
Yet part of the issue is that many people don’t want to go back to work. Where I live, pretty much everywhere I look, I see sun-faded “Help Wanted” signs – meaning they’ve been there for a while.
And this has had a compounding effect on manufacturing lines… trucking companies… and our nation’s ports.
There aren’t enough workers to get products where they need to go on time.
And the stay-at-home trend has complicated this issue even further by ramping up demand for online shopping. With the extra stimulus and unemployment benefits in hand, consumers pushed online retail sales up 32.4% year over year in 2020. And sales were up 39% as of first quarter this year.
More orders equal more boxes sitting on more container ships in a logjam.
And there’s one particular sector that has taken the brunt of this logistics pain…
These days, talk of the supply chain troubles goes hand in hand with the current semiconductor shortage.
The lockdowns followed by a worker shortage gummed up manufacturing everywhere, but this situation hit the semiconductor industry particularly hard.
Keep in mind, semiconductors are a key component of many final products. So when short-staffed assembly lines are struggling to find enough chips to go in their products, it’s a big deal. This backup is affecting almost anything with electronic parts… up to and including my kid’s PS5.
And with increasing FOMO (fear of missing out) surrounding the upcoming holiday season, the growing demand and scarce supply situation are unlikely to be a short-term problem.
This is a twisted knot that will take a while to untangle. But in the meantime, it’s presenting us with a unique opportunity to profit. And the last puzzle piece is the inflation we are experiencing.
With rates as close to the floor as possible, money is easy and loose. When cash is abundant, prices go up. And combined with the sudden scarcity of semiconductors… they’re getting even more expensive.
Major chipmaker Taiwan Semiconductor Manufacturing Company (TSMC) has already announced it will raise prices by as much as 20%.
And that is good news for semiconductor companies’ bottom lines.
The semiconductor industry has at least a few more quarters until we see some relief from the supply chain issues. Even then, there is no guarantee these higher prices from the manufacturers will ease.
So with no near-term end in sight, investing in the semiconductor industry is a nice setup right now.
For investors looking for broad exposure, I’d recommend buying the iShares Semiconductor ETF (SOXX). It’s packed with some phenomenal semiconductor companies. The holdings include some of the biggest, brightest, and super-successful chipmaker businesses out there.
And it’s a great way to profit while we ride out this storm.
Editor, Outlier Investor
P.S. Semiconductors are going to win in the current environment. But that’s not the only way investors can take advantage of this market setup. My analysis regularly identifies the companies that have strong fundamentals… and that “Big Money” is pouring into.
If you’d like to learn about the best outlier stocks coming across my radar – in every sector – then please go right here for the details.
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