How Do Supply Chain Shortages Impact Stocks?
Investing
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Since the start of the COVID-19 pandemic, the rate of supply chain shortages has drastically increased. From chicken wings to semiconductor chips, these shortages are impacting publicly traded companies and the investors who own stock in them.
Here's how supply chain shortages impact stocks and why you should be aware of shortages as you invest in US stocks.
Pandemic, labor shortage, and more are causing supply chain shortages
As of Q4 2021, here are some recent shortages impacting the US and beyond:
Meat (turkey, chicken, beef)
Clothing, accessories, and other retail products
Semiconductors (used in phones, laptops, cars, and more)
Alcohol
Materials like lumber and steel
Chemicals like food-grade CO2 and oxygen tanks
There's even a fake Christmas tree shortage in the US, with National Tree Company CEO Chris Butler saying, "The demand this year is going to be extremely strong and so I think from a consumer perspective people definitely shouldn’t wait."
Issues like pandemic-related factory shutdowns and widespread labor shortages are causing gaps in the supply chain. However, demand isn't going anywhere, and it's putting many public companies behind.
American shipping ports are also backed up due to a surplus of cargo and a shortage of employees.
"The problems at the ports have cascaded across the country. So we followed the supply chain from the choked Ports of LA and Long Beach to rail yards in Chicago. Along the way we found chaos, finger-pointing, huge profits and massive losses. And everywhere, frustration." - Bill Whitaker, CBS 60 Minutes
How supply chain shortages impact the stock market
An industry experiencing a shortage puts a bottleneck on companies, but it's not necessarily a bad thing for shareholders.
If a company has high demand for its product but is struggling to meet that demand, earnings can still grow. Plus, by investing in a sector with a shortage, you can help increase a company's capital, thus allowing them to work to resolve the supply chain issues.
Investing in industries with shortages: Pros and cons
Pros
You can potentially ride a high-growth wave.
Investing in stocks that are impacted by supply chain shortages could be lucrative if you expect demand for the company's products or services to sustain or grow.
As the company problem solves and figures out how to resolve those supply chain issues, investors are able to capitalize on the growth.
Cons
There's a risk the company won't be able to meet demand and its earnings will suffer.
An industry with supply chain issues may be more likely to struggle in an economically stressful time.
There's no guarantee the stock will grow in value.
