7 Stocks That Will Survive Flawless Supply Chain Misery

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Before the invasion of Ukraine, 2022 had started the same way 2021 ended: With chaotic supply chains affecting society and the economy. The products we consume reach us through complex chains that we might not have considered as much as a year or two ago. It starts with manufacturers sending their goods to logistics companies. The logistics company stores and distributes the goods to retailers through a complex transportation system. And the retailer sells those things to you and me.

The chain was disrupted by various forces, but most notably by the pandemic. Lockdowns are suffocating critical parts of the supply chain and products can no longer flow as before.

Business is also becoming more challenging. International trade barriers continue to fall and this increases the complexity of supply chains. On top of that pressure, there is pressure on supply chains to reduce their environmental impact.

We see this effect most clearly in semiconductors, electric vehicle battery components, food and coffee prices to name a few. It makes investors wonder which companies can adapt best because they have distinct advantages and these seven companies are on our list:

• Pepsi (NASDAQ:SPIRIT)
• Costco (NYSE:COST)
• Hewlett Package Company (NYSE:HPE)
• Weyerhaeuser (NYSE:WY)
• Qualcomm (NASDAQ:QCOM)
• Taiwan Semiconductor Manufacture (NYSE:TSM)
• General Motorcycle (NYSE:GM)

Supply Chain Stocks to Buy: Pepsi (PEP)

It became clear that Pepsi could survive the supply chain troubles unscathed based on recent earnings. The reason the soft drink and snack giant is able to do so is not because it is immune to price increases affecting producers of consumer packaged goods in general. The Purchase, NY-based company is also feeling the pressure from higher commodity and transportation costs. The company recognized a 7% increase in price in its Q4 earnings.

But it was able to report an 11.9% increase in organic revenue at the same time. The reason Pepsi operates so well in a tight supply chain environment where inflation is high is simple: The company can provide consumers with higher prices. Pepsi chief executive Ramon Laguarta noted as much when asked about the strong results, “We have consumers following us despite higher prices.”

Pepsi is not without its struggles. Operating profit did drop 9% during Q4. Overall, however, Pepsi reported an 11% increase in operating profit throughout 2021. Revenue also increased by 13% over the year. As long as Pepsi produces products that consumers want, it may be able to squeeze more revenue out of them. That should protect it from broader inflationary factors.

Its decision to stop doing business in Russia has hit PEP shares this week, as the country is the second largest international market after Mexico. Barron’s noted last week that cowen analyst Vivien Azer advises clients that “supply chains in Russia and Ukraine are local, which should protect local currency yields.”

Costco (FEES)

Investing in Costco makes a lot of sense as inflation rates continue to cause concern. Consumers are feeling the effects of the reported inflation of 7.5% in January. The price of basic necessities was greatly affected.

According to the Bureau of Labor Statistics “Higher costs for labor, delivery and ingredients are reflected in rising prices, food industry executives say, so nearly all food is affected. Prices of meat, fish and eggs rose the most, up 12.2% over the past year.”

That’s very concerning and doesn’t look like it’s going to slow down any time soon. A report by IRI in December predicted that grocery prices would rise 5% in the first half of 2022. Again, more bad news driving up consumers’ cost of living.

But higher grocery prices are causing consumers to look for ways to lower their grocery bills. That’s an immediate advantage for Costco. This is clearly seen in the figures the company recently released for Q2 and year-to-date. During the first 24 weeks of 2022, Costco reached $100 billion in sales, up from $86.235 billion over the same period in 2021. This has resulted in improved net income and EPS figures and makes COST stock worthy of serious consideration.

Supply Chain Stocks to Buy: Hewlett Packard Enterprise (HPE)

Hewlett Packard Enterprise topped revenue estimates with first-quarter results. It doesn’t matter that network equipment, computer servers, and data storage companies miss a bit of revenue figures. The market was more concerned about the fact that the company posted an EPS figure of 53 cents, beating forecasts of 46 cents, than the fact that its $7 billion revenue was just less than the $7.01 anticipated.

Investors impressed by HPE’s stock performance as a competitor Dell Technology (NYSE:DELL) and Cisco System (NASDAQ:CSCO) continues to forecast earnings according to previous guidance.

The suggestion here is that Hewlett Packard Enterprise navigates a difficult supply chain landscape better than its competitors.

Part of the reason tech makers are doing better is because they’re turning to more “as a service” business. Its subscription base orders are up 136% from a year ago. That certainly reduces costs because the company ships less hardware and sells more subscriptions. Digital products do not face supply chain problems.

Weyerhaeuser (WY)

Weyerhaeuser is the next stock on the list of companies that have had to survive supply chain disruptions relatively better than the rest. The company was founded in 1900 and manufactures, sells and distributes wood products.

Currently there is an explosion of home construction in the US. Construction of two types of houses, apartments and single-family houses, has increased by 13% and 22%, respectively. While the article I linked to said the boom didn’t help certain demographics get into their first home, it did help Weyerhaeuser.

It reported a record full-year net income of $2.6 billion. The company’s EBITDA (earnings before interest, taxes, depreciation and amortization) increased 86% over the year, reaching a record $4.1 billion.

Back in mid-2021 Weyerhaeuser CEO Devin Stockfish predicted that a development boom could generate strong wood demand for the next decade. We’re roughly nine months past that prediction, but preliminary results seem to confirm what he said was true.

Weyerhaeuser sees earnings increasing 35.44% between 2020 and 2021. WY stock earnings skyrocketed from $1.07 per share to $3.47 over the same period. A strong building supply stock like Weyerhaeuser is a logical choice in times of chaotic supply chains.

Supply Chain Stocks to Buy: Qualcomm (QCOM)

Chips are hard to make and even harder to make with certain supply chain challenges. That’s why Qualcomm makes so much sense nowadays. Semiconductor manufacturers that primarily cater to the handset market recently surpassed Wall Street expectations. That’s always a positive, and especially this year as the chip supply chain has been so negatively affected.

CEO Cristiano Amon noted that demand continues to outstrip supply but supply shortages are improving. Although he sees the problems persisting, the company was able to report $10.7 billion in sales and $3.4 billion in net income in the last quarter.

That topped Wall Street’s QCOM stock watchers’ expectations and continued to reinforce the idea that semiconductor stocks are a strong bet in today’s environment.

The company is seeking to develop markets beyond its core handset market. Handset sales increased 42% for the company in the last quarter but is still seeking to diversify its revenue streams into other semiconductor markets.

Taiwan Semiconductor Manufacturing (TSM)

Taiwan Semiconductor Manufacturing is important for the same reason as Qualcomm: Both companies are central to the semiconductor supply chain. The difference is that Taiwan Semiconductor Manufacturing is even more important.

And the supply chain story is affecting it in ways we couldn’t have predicted just months ago. That’s because TSMC was the center of the Russian invasion of Ukraine related to semiconductors. It has been reported that “Russia is completely dependent on TSMC for the high-end semiconductors needed to manufacture everything from laptops and smartphones to equipment for the country’s military and security services.”

TSMC has stopped selling its semiconductors to Russia and the message is clear. The Taiwan-based company wants China to realize that it will not tolerate an escalation of aggression that implies any kind of invasion of its home country.

TSM’s share price has fallen after the invasion of Ukraine. But I believe it will work out in the end because the forces of right and wrong will conspire to support TSM in bypassing Russia.

TSMC has moved from Russia because its needs do not match its business. Now he can direct those efforts to more fruitful endeavors.

Supply Chain Stocks to Buy: General Motors (GM)

The auto industry has been as damaged as supply chain woes. In particular, the chips needed by General Motors and its partners are hard to come by

“Automakers big and small are still impacted by shortages of semiconductors, tiny components that are absolutely necessary, even in the most basic cars and trucks.” Cnet Tour show recorded last month.

Last year that meant GM had to offer vehicles without certain features due to a chip shortage. This year the company did not face any downtime at the assembly plant due to shortages.

That implies that GM should be able to handle the increased manufacturing requirements and complex chips required for its EVs. The company has a goal of delivering 400,000 EVs in North America by 2024.

That would have resulted in a higher valuation for GM stock. It depends on the company continuing to successfully navigate the complex supply chain environment.

As of the date of publication, Alex Sirois does not hold (either directly or indirectly) any position in the securities referred to in this article. Opinions expressed in this article are those of the author, subject to InvestorPlace.com Publishing Guidelines.

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