The war in Ukraine has had ripple effects throughout the globe.

From a purely economic standpoint, it has illuminated the global supply chain and sources of commodities.

I knew Russia and Ukraine were responsible for many raw material inputs, like natural gas and wheat.

However, I was amazed to find out Russia and Ukraine produce so much of the world’s neon gas. A recent Wall Street Journal article said the two countries are responsible for about a quarter to a half of the world’s neon supply.

Rest assured, I’m not going to lament a shortage of bar signs. But we may be surprised by the many uses for neon… and the way the neon disruption points to a potential investment opportunity…

Tracking the Money

Hi, I’m Jason Bodner, editor of Outlier Investor.

I’m a Wall Street veteran – and now I bring my years of experience on the Street to investors here at Brownstone Research.

Importantly, I share deep insights about money flows… which I track with the proprietary system I built.

Using AI and data analytics, I can spot when “Big Money” is piling into or out of a sector or particular stock. That’s important because Big Money players – like hedge funds and institutional buyers – can move markets.

And that’s why I’m so interested in what the neon gas situation is showing us…

Odorless, Colorless, and Ubiquitous

Lasers. Voltage warning lights. Vacuum lamps. Cryogenic refrigeration. Televisions. Automobiles. Trains. Aerospace. Diving equipment.

Everything I just mentioned uses neon in some form or fashion.

We probably don’t associate neon gas with tech innovation often, but there is a clear link. Neon is a key raw component in a number of products.

Do you know what else uses neon? Semiconductors.

We use the odorless and colorless noble gas in the lasers that print circuitry onto silicon.

We’re all aware of the pandemic-induced supply chain pressure in the semiconductor industry. Semiconductor manufacturers have scrambled and pivoted their way to meet the demand for chips over the past couple of years.

So when the war in Ukraine arose, they were already prepared somewhat because of what they’d been through since early 2020.

For example, several big players in the industry had neon stockpiled before the war. This means near-term production can continue.

And like Jeff Brown shared this week, not all semiconductors need neon – the most advanced ones use different technology. So we won’t be in dire straits immediately.

However, looking beyond the near future, things become increasingly unclear. Companies will need to scramble to develop new production of the gas.

This isn’t a great scenario when chips are already in short supply… Supply could become even shorter, as demand is unlikely to wane. As such, strong demand and even shorter supply will likely push prices up.

And that also points us to an opportunity…

What This Means for Investors

High-quality semiconductor stocks, along with technology stocks in general, have been battered lately… which the neon news hasn’t helped.

For instance, NVIDIA (NVDA), a semiconductor giant, has lost 23.2% since its late November 2021 high:

And the Technology Select Sector SPDR Fund (XLK) is down 11.3% this year:

Those green and red bars in the charts are Big Money buy (green) and sell (red) signals. It’s clear these investors are temporarily moving out of semis and tech right now.

But remember, semiconductors are in so many things – from our cars and household appliances to our computers and phones. Demand is huge.

Plus, the best-of-breed companies in the sector have strong fundamentals.

And given the cyclical nature of markets… I’m bullish on semis, even with the current headwinds like neon production.

I wouldn’t be surprised if semiconductor stocks – and tech in general – make a comeback down the road.

After all, the long-term history of both is quite good.

That means that this temporary disruption to the semiconductor industry could be a valuable buying opportunity.

And a great way to play semiconductors is with the iShares PHLX Semiconductor ETF (SOXX).

A “For Sale” Sign Just Turned On

This ETF is loaded with great stocks like NVIDIA (NVDA), Advanced Micro Devices (AMD), Apple (AAPL), Microsoft Corporation (MSFT), and more.

It has nearly $46 billion under management and has been sold pretty hard this year, despite its great holdings.

But taking a broader view, you can see it’s felt the Big Money bump for a long time:

As a result, this pullback may be a good entry point.

For long-term investors, SOXX looks like a great opportunity… almost like someone flicked on a neon “sale” sign.

Talk soon,

Jason Bodner
Editor, Outlier Investor

P.S. ETFs are a great way to gain broad exposure to a trend. And given the current global dynamics, I think SOXX is a solid play for investors.

Yet my main focus always remains on the outlier stocks… companies that will outperform all the rest.

With outliers, we can juice our returns by targeting the stocks with the most promise. To learn more about how I find these outliers, you can go right here for the details.

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