What are Supply chain stocks?
Supply chain stocks are a group of stocks that provide a way to participate in a company’s performance that participates in the production, storage, or distribution of goods. Supply chain stocks are important because they represent the backbone of our economy, without them, we would have no goods to buy and sell. However, it’s not just about buying and selling. When you invest in supply chain stocks, you can diversify your portfolio and be a part of an industry that fuels the world.
A supply chain is a system that delivers goods and services to customers. A supply chain shares one goal: to deliver products to customers as quickly and efficiently as possible. It starts with sourcing raw materials, continues through production, logistics, and finally ends with the customer. Most companies use more than one company for their supplies, which creates complexity in the system.
Supply chains are the backbone of most large-scale industries, and because of this, apply chains are for some investors the best stocks on the market. They are a series of interconnected companies, vendors, suppliers, and customers who work together to produce goods and services. Supply chains provide the material inputs necessary for production, and they move products from producers to consumers. They include all of the processes needed for managing inventory and handling customer service requests. They link together all of the components that go into producing a product or delivering a service. In addition, they often provide financing for their members. Supply chains also typically involve global sourcing or sourcing abroad. Here are three stocks that could be good investments for your portfolio.
Bank of America view on supply chain stocks
“Transport companies are poised to benefit from tight freight markets, which have raised spot rates significantly above contract rates, with customers likely to accept large increases in upcoming negotiations (Deutsche Post DHL, Maersk, DSV),” they wrote in an Oct. 19 note.
Dan Niles, an investor, says he has sold out of his favorite tech stock ahead of earnings. This is why: “Because semiconductor shortages are disrupting large industries such as autos, where semis account for a small percentage of total input bill, semis companies are in a strong position to raise prices (ASML, Soitec, Infineon, ASMI).”
“Resulting in spiking spot prices for oil and gas as well as a gradual shift up-in forward curves (Total Energies, Equinor).”
Finally, they identified several commodity stocks that could benefit from supply constraints. “As a result of China’s energy shortages, supply across the commodity complex is reduced, leading to tight markets for coal, aluminum, and steel and, thus, pricing power for metal and mining companies focused on these areas (Glencore, Norsk Hydro, ArcelorMittal, Voestalpine),”.
Meanwhile, they stated that “online retailers are vulnerable because of their limited ability to pass on increased costs due to higher raw material prices and labor inflation (Zalando).”
“Supply-chain disruptions and rising commodity prices may result in near-term headwinds for capital goods companies that use a lot of raw materials or are especially sensitive to changes in energy costs (Electrolux, Bodycote),” they wrote. “High energy costs may also be a headwind for energy-intensive chemicals businesses (Yara).
Unlike other sectors like travelling, the Bank of America strategists are skeptical of a strong rebound in economic growth once supply-chain issues are resolved, warning that manufacturing supply bottlenecks.
They also stated that as European Central Bank policy makers become more focused on the upside risks to inflation.
The strategists concluded that the macro environment for equities had shifted from a “goldilocks” situation (stable growth) to a “anti-goldilocks” situation.