It's tough to overstate the impact of the global supply chain crunch; it's going to be felt far beyond this particular earnings season.
The crunch itself is serving to elevate winners and cast down losers.
The "losers" are those firms with massive exposure to the disruptions; they've no doubt got several quarters of rough sledding ahead.
The "winners" are the companies that are well-insulated from supply issues; firms that can hang tough and adapt to the changes, and even companies that can help ameliorate the problems.
As investors, this is a no-brainer - we want the winners. There are two I've got my eye on at the moment, and I've developed two "bonus" trades as a kicker...
Two Stocks (and Trades) on My Radar Right Now
The semiconductor shortage has been raging for even longer than the "everything shortage" created by the global supply chain clogs. Intel Corp. (NASDAQ: INTC) is the American poster child for semiconductors and the world's largest chip maker by revenue.
INTC shares dropped off a cliff on Friday, and they've fallen more than 13% over the past five sessions since releasing its third-quarter financials.
The Santa Clara, Calif.-based juggernaut beat revenue estimates by $10 billion - an impressive sum... but its profit margins shrank for reasons I find intriguing, but which put a lot of investors off their lunch.
But that's a mistake you don't want to make.
Here's the thing about those thin margins. Intel is a major player in the "re-shoring" or "on-shoring" plan designed to bring large-scale semiconductor manufacturing back to the United States. That's a plan with massive implications for everything from national security to consumer goods. The disruptions we've experienced with Asian-manufactured chips have made it painfully clear the United States needs a more secure supply of the chips that go into all kinds of sensitive, essential equipment.
Intel's margins are down 10% thanks to its financing of this Herculean task, but most analysts - myself included - see margins moving back up into the average range of 60% to 65% in two years.
In order to finance the project, margins are down 10%, but we are back up to INTC's average range of 60%-65% in two years. This is a long-term strategy that's going to pay off for Intel, and it's going to richly reward investors who take the long view and overlook eight or so quarters of slimmer margins.
INTC is trading at just above $48 right now, but I think they could drop down further, into the $46 to $47 range.
At today's (deeply discounted) prices, and with such massive prospects, Intel stock is just too good to pass up. As a high-profit kicker, be ready to jump on a trade when and if Intel drops to close below $46.50 - a very real possibility in the next two or three sessions. In that event, I'd buy a call spread: INTC March 18, 2022 $52.50 calls and INTC March 18, 2022 $55 calls for $0.75 or less. Exit the position when you notch 150% in profits.
Cleveland-Cliffs Inc. (NYSE: CLF) had an outstanding Friday, jumping more than 10% during the same session that took about as much from Intel.
Its third-quarter results saw a revenue surge of 265% over the last year, which was driven by a series of strategic acquisitions of ArcelorMittal's U.S. operations and AK Steel. Since then, Cleveland-Cliffs has seen revenue jump from $2 billion in 2019 to an expected revenue of $21 billion by the end of this year.
Those are great numbers, any way you slice it. But what really caught my attention on the earnings call was the company's ability to successfully negotiate annual fixed-price sales contracts with some of its most important customers.
CEO Lourenco Goncalves explained that the company's "average sales price next year should be higher than in 2021, allowing us to continue to grow our already strong profitability and to further strengthen our balance sheet."
I'm lovin' it. But I have to say I'm concerned CLF's upward swing over the past few sessions has been too much, too fast. I'm looking for shares to come back down toward $22.80 to add more to a position.
And to sweeten the deal, if those shares hit $22.80 over the next seven or eight sessions, I'd put on another spread - CLF Dec. 17, 2021 $24 calls and CLF Dec. 17, 2021 $25 calls, all for $0.45 or less.
If shares of CLF come back down to $22.80 by Nov. 5, 2021, I like buying the CLF Dec. 17, 2021 $24/$25 call spread for $0.45 or less. Should the stock break down and close below $20.75, you'd realize a 100% profit - and a timely exit.
Semiconductors and steel don't sound like they have a whole a lot in common, but that just goes to show how the most successful investors need to be flexible - especially now - and look for return potential off the beaten path. And today, some of those investors, like Kevin O'Leary of "Shark Tank" and big banks like Morgan Stanley, have started investing in a market that could soon be worth a mouth-watering $400 billion. In fact, 23 stocks in this new market could very well jump 1,000% in just 12 months... and they cost just pennies on the dollar right now. Go and see what this is all about here.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.