Are You Ready to Buy the Dip?
My family has been waiting two months for a new stovetop.
A new couch for my family would’ve been delayed two months after we bought it, the last time I looked.
And the PlayStation 5, something we have been looking for since the holidays, is still out of stock.
But it’s not for the reasons you think.
It’s one of the lingering effects of COVID-19 on the economy. And it’s hitting companies hard.
We’re just starting to see the effects on businesses.
We know the American consumer was strong last year — propelling holiday sales and new home sales to a record pace in 2020.
But now that strong demand has collided with coronavirus-related delays, it’s coming to a head.
Here’s what this means for some of your favorite stocks over the next few months…
The Global Supply Chain Is Stuck
You don’t see it, but right now there is a massive traffic jam at our country’s ports. Ships are backed up waiting to unload. That, in turn, is delaying container ships from other countries even setting sail.
These are the ships that make global trade possible.
These issues are on top of production delays — global factories suffered prolonged shutdowns in 2020 due to the pandemic.
Even worse — transportation companies are facing a global container shortage from lack of supply and logistical logjams. Plus, the long trend of falling truck driver numbers is finally coming to a head — the shortage in the U.S. is being compounded by a surge in demand following the economic lockdown. This is slowing deliveries on all kinds of items.
Nike, the retail apparel outlet, gave us the latest insights into the crisis when they reported earnings last Thursday.
They experienced a 10% drop in sales last quarter compared to last year. Shipment delays have been dragging on the company’s inventory for more than three weeks. It’s affecting various outlets — stores couldn’t get inventory in on time and now will have to discount older merchandise to move their current stock.
All investors will be glued to the upcoming earnings season to get an idea of when these headwinds are going to let up.
We could see a sell-off as investors get nervous about how long this will drag on.
After 2020, when the economy shut down, we knew it would take some time to get back to normal. But here we are, a full year out from the day the world stopped, and there’s no end in sight.
It’s going to start hitting corporations’ bottom line. And that will get investors’ attention.
And that’s what I’m looking for.
Any weakness the stock market shows from a soft first quarter is only going to be temporary. And I’d buy every dip.
Look Out for Opportunities
We know consumers have been strong despite the pandemic. And as our lives get back to normal and Americans can travel to their favorite destinations once again, it’s going to spur an economic boom.
The COVID-19 vaccine is rolling out nationwide and the age groups eligible to get it are dropping by decades every week.
In just a few months, anyone who wants a vaccine should be able to get a vaccine.
And at that point, what’s holding us back?
It’s time to unleash the American consumer into a normal life and spark a true economic boom that will last years.
That’s why any weakness we get this quarter, I’m buying into it.
A lot of these headwinds are set to work themselves out over the next few months. The container distribution will right itself as time goes on. And the transportation sector is highly incentivized to get back on schedule. All of the problems facing these companies are fixable — and I expect they’ll come roaring back from any drops.
And this sets us up for a strong finish in the second half of 2021.
I’ll keep my eye on the markets over these next few weeks to take advantage of any weakness the market gives us.
Chad Shoop, CMT
Editor, Quick Hit Profits
P.S. These opportunities are going to be short-term in nature. And the best way to capitalize on short-term price moves is with options. Every week, I break down how you can use options to maximize your profits in the Weekly Options Corner. Join me as I walk you through all you need to know to master options.
Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.