Profit Pregame

Why Supply Chain Woes are a Good Sign for These Stocks

A lot is being made about the current difficulty in manufacturing goods – but it’s music to these companies’ ears.

What’s happening?

For the last few months, we’ve seen headlines popping up about the supply chain issues for the semiconductor industry – which makes the microchips found in just about every piece of electronic equipment these days.

As a result of the drag that the supply chain woes have created, top semiconductor companies like Advanced Micro Devices, Inc. (AMD) and Taiwan Semiconductor Manufacturing Company Limited (TSM) have traded as much as 26.9% and 24.1% lower from their year-to-date-highs, respectively.

While it is an incredibly important industry, it is just one small piece of the manufacturing sector. And if one industry can cause so much alarm among investors, imagine if the entire sector were facing similar supply chain challenges.

Well, a recent report may have just given us an indication that that is exactly what we’re facing.

But before you panic sell your manufacturing stocks based on these scary headlines, let’s take a look at what this really means.

Where’s the money?

On Tuesday, the Institute for Supply Management and HIS Markit released a report that indicated that the lead times – the amount of time between the initiation and completion of a production process – are at their highest since 1974.

The record lead times are being caused by issues with transporting products, widespread shortages of basic materials, and rising commodities prices.

But the report also shows that the U.S. manufacturing sector is actually growing at a steady pace, despite the recent supply chain issues.

So, while the headlines that are designed to grab your attention may seem like gloom and doom, what we’re really seeing is a massive increase in consumer demand that the manufacturing sector is having trouble keeping up with.

And having too much demand is usually a good problem to have.

With the U.S. now surpassing 50% of the population with at least one dose of the COVID-19 vaccine, consumer confidence is on the rise, and manufacturing stocks are poised for a profitable second half of 2021.

Here are a few of my favorite names…

How do I get some?

The resource names – that is, companies that produce basic materials – have been on fire lately, and this includes moves like…

  • Freeport-McMoRan Inc. (FCX) surging more than 15% since early may…
  • Rio Tinto Group (RIO) gaining over 8% since last Tuesday…
  • and Cleveland-Cliffs Inc. (CLF) climbing more than 13% over the last week.

I think all of these names will move higher, the global growth and COVID-19 recovery story will continue to gain steam, and these names will take out their 52-week highs in the near future.

My favorite name in this space is Century Aluminum Company (CENX). As automotive and aerospace production gets back on track post-pandemic, this aluminum producer could see some massive moves caused by increased demand. My scanners have already begun picking up on large buy orders as forward-thinking investors begin to pile in.

I would highly recommend this stock to anyone looking for a solid post-pandemic growth investment.

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In the Spotlight: Unbelievable short squeeze gains

The story on every investor’s mind right now is the revival of the efforts of retail investors to force a short squeeze on AMC Entertainment Holdings, Inc. (AMC).

And yesterday saw by far the biggest movement in the heavily-shorted stock since January.

While AMC has been making huge gains of anywhere from 10% to 30% per day for the last several days now, few could have predicted what would happen yesterday.

After opening up another 17%, AMC shares absolutely exploded yesterday on enormous trading volume.

At its highest point, shares of AMC had surged more than 110% over the prior day’s close. In total, AMC has gained as much as 496.7% since May 24.

It’s too early to tell whether this is a result of major short sellers being forced to cover their positions, even more retail investors that are afraid of missing out piling in, or a combination of the two.

I – and the rest of the market, for that matter – am keeping a close watch on this situation. As I have a chance to dig into what’s happening behind the scenes, I’ll be sure to keep you posted on the latest from this incredible market phenomenon. Stay tuned.

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