Recently, U.S. manufacturing activity has slowed down considerably due to numerous supply-chain issues. Rising vaccinations against Covid-19 as well as a colossal stimulus package have both unleashed pent-up demand. This has made for plenty of bottlenecks, including “record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products.” With the pandemic now in its second year, companies are struggling to meet increasing rates of demand. However, this predicament also creates an opportunity for savvy investors.
In particular, semiconductor shortages have been incredibly noteworthy in the past few months, with the shortages hitting traditional automakers, electric vehicle (EV) makers and tech companies the hardest. Apart from semiconductors, though, there is also a widespread shortage of lumber, plastics, palm oil and other commodities.
It will take a while before these bottlenecks can be remedied. But that allows investors to take advantage of the situation. So, here’s a list of stocks to buy in order to profit from America’s current supply-chain issues.
- UFP Industries (NASDAQ:UFPI)
- Weyerhaeuser (NYSE:WY)
- Taiwan Semiconductor (NYSE:TSM)
- Applied Materials (NASDAQ:AMAT)
- Teradyne (NASDAQ:TER)
- Intel (NASDAQ:INTC)
- Qualcomm (NASDAQ:QCOM)
Stocks to Buy on Supply-Chain Issues: UFP Industries (UFPI)
UFP Industries produces an array of wood products for retailers, engineered components for construction customers and lumber for the housing industry. Moreover, this company also provides specialty wood packing materials for various industries. Altogether, it is a financially sound company with strong fundamentals that are currently riding the lumber boom.
Recently, UFP also reported stellar first-quarter results. For Q1, revenues grew by 77% year-over-year (YOY) to $1.83 billion. Additionally, net earnings rose by over 157%, marking a new record for the company. Net sales across all three of its segments — UFP Retail Solutions, UFP Industrial and UFP Construction — grew by at least double-digit percentages.
Today, UFPI stock trades for nearly $73 and has returned over 61% in the past 12 months, with a return on equity of roughly 21%. Forward revenue and earnings estimates are impressive. Plus, the company should continue growing organically as well as through acquisitions, regardless of when the lumber boom comes to a close.
Next up on this list of stocks for supply-chain issues, Weyerhaeuser began its operations in 1900 and is currently one of the largest private timberland owners in the world. It owns over 12 million acres across North America under long-term licenses.
Naturally, the recent boom in the lumber market has helped this company greatly. For example, Weyerhaeuser generated solid adjusted EBITDA growth of 166% as well as operating cash flow growth. Moreover, WY stock’s returns in the past 12 months are at an incredible 57%.
This company’s Q1 results showed a marked improvement in sales and earnings. Net sales were at $2.51 billion compared to $1.73 billion in the same quarter last year. Moreover, its adjusted EBITDA of $1.1 billion increased from $413 million from Q1 2020. Finally, “benchmark prices for lumber and OSB reached record levels in Q1.”
Now, CEO Devin Stockfish believes that the home-building boom will continue to keep wood demand strong for another decade. Today, WY stock trades for a little over $34.
Stocks to Buy on Supply-Chain Issues: Taiwan Semiconductor (TSM)
Taiwan Semiconductor is one of the largest producers of integrated circuits and semiconductors in the world. Currently, it has a market share of 54% in the semiconductor manufacturing industry. Moreover, TSM continues to tighten the screws on its competition in the foundry market.
For fiscal 2020, TSM’s revenues rose by 34% to $47.6 billion in 2020. It also produced a whopping 24% of the world’s semiconductor supply. Now TSM stock has picked up from where it left off in 2020 and will likely push forward with similar results this year.
Indeed, the company has already shown up again in Q1 2021, with its revenues increasing by 25% to $12.9 billion. Moreover, its gross and net margins came in at about 52% and nearly 39%, respectively.
For the full year, analysts now expect a 17% bump in revenues. Additionally, from 2020 to 2025, management expects revenues to grow at a compound annual growth rate (CAGR) of 10% to 15%.
Applied Materials (AMAT)
Applied Materials provides semiconductor manufacturers with software, services and equipment to carry out their operations effectively.
Like other names on this list, the pandemic has accelerated demand for this company’s products and services, which is why its fiscal 2020 revenue growth was at 18% YOY. That said, AMAT also recently laid out an ambitious three-year outlook, where it expects to continue on its upward trajectory and significantly expand its revenue base.
From a fundamental standpoint, AMAT has witnessed healthy revenue growth in its past five quarters. In Q2 2021, revenues also shot up 41% to $5.58 billion YOY. Moreover, its adjusted earnings per share (EPS) of $1.63 improved 83% from the prior-year period, while cash from operations totaled $1.19 billion — a significant improvement YOY.
Currently, AMAT stock’s 12-month returns are at a fantastic 146%. Plus, the stock’s still pretty fairly priced, despite the huge macro tailwinds at its back. That earns it a clear spot on this list of picks to buy for America’s supply-chain issues.
Stocks to Buy on Supply-Chain Issues: Teradyne (TER)
Teradyne is a company that designs and sells testing equipment for the automotive, industrial and mobility sectors as well as for other industries. However, the lion’s share of this company’s sales come from its semiconductor tests, which totaled $528 million in Q1 2021.
Like others, this name is in prime position to benefit from today’s supply-chain issues. With all the exponential growth in demand for semiconductors and its testing equipment in line with the rollout of 5G globally, TER stock stands to win.
On top of beneficial trends, though, Teradyne is a fundamentally robust enterprise that stands to gain from various disruptive technologies. Its long-term growth catalysts include robotics, 5G and semiconductors. It has also been able to consistently increment its operating margins for the past few years.
Currently, TER’s cash balance is at a healthy $831.1 million. Altogether, TER stock is in a fantastic position to continue providing sustained returns to investors for the foreseeable future.
Intel is next up on this list of stocks to buy in order to benefit from the nation’s supply-chain issues. All told, Intel is arguably one of the largest chip manufacturing giants in the world. True, in the past few years, the company has struggled to grow its business. However, under the control of its new CEO Pat Gelsinger, things could turn around in a major way.
Under previous management, Intel has been content to outsource manufacturing to companies like TSM. However, Gelsinger aims to revive Intel’s foundry services, pledging $20 billion to expand its capabilities. This involves developing a new chip plant building in Israel as well as a new research and development center.
So, INTC stock’s current long-term outlook looks very positive. The company could potentially make a big splash in the next couple of years.
Stocks to Buy on Supply-Chain Issues: Qualcomm (QCOM)
Last up on this list of stocks to profit from supply-chain issues, Qualcomm is an evergreen chipmaker that is well-positioned to ride the 5G wave.
Right now, the 5G battle is all about patents — and that’s where Qualcomm has the decisive edge. Moreover, QCOM is the largest mobile chipmaker by a clear margin. The pandemic severely impacted its 2020 results, but with the accelerating rollout of 5G this year, things should change dramatically for QCOM stock.
In fact, Qualcomm has already pushed into high gear for its past few quarters, posting great percentage growth in revenues. In its most recent quarter, it generated $7.94 billion, a 52% improvement from the prior-year period. Additionally, its non-GAAP EPS was up 116% YOY to $1.90. And finally, financial strength remains considerably intact for the company, with a massive cash balance and solid levered free cash flow growth.
Altogether, with multiple growth drivers, Qualcomm should continue to grow consistently over the coming years.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.