WHAT SUPPLY CHAIN CHAOS?
SHOCK APPLE ANNOUNCEMENT WILL SEND THIS STOCK SOARING
As Hemingway put it in the novel The Sun Also Rises, it always happens “gradually, then suddenly.”
America Has Supply-Side Problems
WSJ, October 28, 2021
There are many ways to get investment ideas but more than one very successful investor has told me that for them, it all begins with the humble front page of a newspaper.
Just look at the headlines and stories that make the front page.
It’s usually a problem and a trend – and a huge opportunity to make money.
Solving this problem will make some people very rich.
Why not you?
But I caution you—this requires some intensive thinking, discipline and research.
For example, I recently saw these this headline.
Microsoft Profit Soared 48%
October 28, 2021
Microsoft’s number was impressive but it avoids supply chain chaos with its software and cloud markets. Digital companies are one place where you want to be these days.
But what’s wrong with so many other companies that reported lower sales due to supply chain problems?
Some had to close some production facilities because of the shortage of parts and inputs such as semiconductors, which will continue into 2022 and become a bigger crisis going forward.
This is a complex story that had been out there going back to late 2020 and smart, alert investors were way ahead of the shortage of crucial inputs like semiconductors.
For example, semiconductor company ASML Holdings (ASML) was up 139% in less than 12 months
But there is another twist to the headlines that could yield multiples of ASML returns. More on this opportunity in a moment, but let’s turn to a June 2020 headline that caught my eye in the Wall Street Journal.
U.S. is Vulnerable to China’s Dominance in Rare Earths
The supply of rare earths is essential for so many technology products such as smartphones, electric vehicles, and wind turbines. Here the Explorer recommended Lynas (LYSCF) stock that went from 1.32 in June of 2020 to 5.53, a surge of 419%.
Last year, the following headline was in the New York Times.
‘I’ve Never Seen Anything Like This’: Chaos Strikes Global Shipping
March 6, 2021
Star Bulk Carriers (SBLK) was up 257% in 2021.
Cabot Explorer has uncovered plenty of similar great stocks by exploring the world for new emerging trends posting returns of:
+317%, +1,410% , +812%, +364%, +81%.
Here is another headline that caught my attention.
“Apple reports another blowout quarter with sales up 54%, authorizes $90 billion in share buybacks”
October 28, 2021
Apple, the darling of Wall Street, has a handle on its supply chain because of its power and leverage over partner Foxconn that garners 50% of its revenue from assembling Apple products.
Its products require the careful coordination of an extensive range of inputs from rare earths to semiconductors before assembly by Foxconn in Asia.
Microchip assembly for Apple alone can require that parts travel up to 25,000 miles before becoming finished products such as iPhones, according to a report by Accenture and the Global Semiconductor Alliance.
You will soon learn why Apple is a special case and also why going forward, it cannot expect any substantial increase in its U.S. market share for mobile phones—already at 52%.
Plus at a market value of $2.5 trillion, Apple is getting too big to grow fast so it is buying companies to help it enter new exciting markets.
Like a $5 billion electric vehicle company that matches Apple’s strategy and new plans perfectly. You don’t want to miss this one.
Let’s begin with the big picture and drill down.
The Big Picture
First, Americans took the money they received from the government and what they previously spent on vacations and used it to spend on goods for their homes, which had suddenly become offices and classrooms with new office chairs, gym equipment, and printers. They bought kitchen appliances and materials for home projects.
All this swamped the system leading to surging fuel and energy prices, power shortages across the world, encouraging stockpiling and inflation, semiconductor shortages affecting carmakers, and container ships stuck outside ports made worse by logistical assets such as workers, trucks, and rail to get the goods to warehouses and then on to consumers.
All this means cargo is piling up not only in port terminals but also in rail yards and warehouses.
The median cost of shipping a standard metal container from China to the West Coast hit $20,586 in October—almost double what it cost in July, which was already twice what it cost in January and 700% higher than the cost a year ago (Freightos Index). According to JPMorgan analysts, new vessel orders will not be delivered until 2023, “at the earliest time frame.”
The impact of all this can be seen in sales during the most recent quarter. Car sales were down 68.1%, furniture sales fell 15.4% and household appliance sales dropped 17.7%.
Some big companies have the leverage to find their way around some of these problems.
Walmart, Amazon, and Costco are going so far as to charter their own ships to make sure they get what they need for the holidays. They have tremendous power over suppliers. For example, as I mentioned, about half of Foxconn’s annual revenues come from assembling Apple products.
But smaller businesses are in a tough spot.
- Suppliers are not honoring delivery guarantees.
- Shipping prices from China are up 400% since last year.
- Delays for ocean freight are up 45%.
Interviewed by Forbes, Jim Hull, strategy executive of Blue Yonder explains that, “Middle sized companies do not have enough resources to circumvent the current clogged system.”
American ports and warehouses in Long Beach, California, which handles 40% of America’s imports, are full of goods and short of workers and trucks
Since 85% of world trade is moved by sea, this part of the supply chain is hitting the headlines. According to Trading Economics, the Baltic Dry Index—a shipping market bellwether—is up 157% over the past year.
But this is just a part of the supply chain chaos issue.
Most important is the tremendous shift of manufacturing to Asia such as China, South Korea and Taiwan as well as Southeast Asian nations like Vietnam. This was already a problem since supply lines ran thousands of miles and changes in orders were a challenge. To make matters worse, companies squeezed inventories to the bone to increase profitability.
Then we were hit by the pandemic. Economies went into lockdown. Factories shut down. In response, shipping companies cut their operations.
That proved to be a big mistake and led to the current supply chaos.
One simple solution is to make more of this stuff in the good old USA.
Another is to work with a powerful company with a dependable supplier and have a large digital footprint. The digital world has gone into overdrive delivering higher profits and higher stock prices.
Let’s look at another headline that followed the most recent quarter for Apple, again on October 25th 2021 in MacWorld following its blowout quarter with sales up 54%.
“Apple’s 2021 was excellent, but 2022 could be epic”
Apple products and services have high margins and an asset-light strategy with little supply risks. The company benefits from network effects and scalability as sales can expand with little friction, even to global markets.
But Apple stock has already had a huge run and is now the most valuable company in the world.
Apple needs new big markets to keep growing and expand its digital tech brand.
It will soon shape a market and shake the world by entering a blockbuster market.
THE FIRST DIGITAL ELECTRIC VEHICLE (EV) = APPLE AND PARTNER
Electric vehicles now have all the bells and whistles but so far fall short of any claim to be a digital car.
An EV of course has a battery, a motor and a frame. Unless we move into the Jetson era of flying cars, all this will be with us a while.
By digital I mean complete integration of the three main components, autonomous full service drive, and monthly subscription fees rather than big down payments or rigid lease agreements. All ordered and paid digitally.
Who could pull this off?
Apple—with an EV partner.
But they will have to move fast because the market is getting crowded.
Apple has “Project Titan,” staffed by 1,000 or more engineers and staff to do just that. It has received an autonomous testing permit from the DMV. The chief of Project Titan is the former head of Apple’s AI machine learning. Self-driving software is being developed and tested. The Apple Watch chief is also rumored to be working on the project according to Business Insider.
Bloomberg also speculated on November 18th on an Apple EV, and Jim Suva of Citigroup argues that a rollout of an electric vehicle could increase Apple’s valuation to $3 trillion saying that:
“I believe they are continuing to build a vision, the infrastructure, they are looking for partnerships on the battery side,” he said. “They are not going to miss out on the $5 trillion green tidal wave.”
Apple could leverage its 52% U.S. market share and 23% global market share for smart phones to become the leader in the global EV markets.
How big is the market for EVs worldwide?
A conservative estimate is a market going from 3.1 MM in 2020 to at least 15 million EV sales in 2025, with 40 MM in sales in 2030.
Meanwhile, the Apple 13 iPhone has received lukewarm reviews and the camera upgrade seems the only big positive.
Apple is looking to expand into related areas with higher growth trajectory and similar profitability.
Plus, Apple has $62 billion to burn. And it needs the right EV partner.
All this money is tied to the iPhone as well as its other Apple products and services.
This will change in early 2022, so it gives us a chance to get in early.
This explains why the chatter, while quite low, has been increasing steadily especially among avid Mac fans.
All this points to Apple announcing a definitive move into electric vehicles in early 2022. But the question is, what companies will Apple partner with?
Apple seems to have has zero interest in a legacy automakers like GM or Ford and their “catch-up” low margin businesses.
Apple wants to partner with a new, flexible automaker with a global perspective and a green, sustainable culture at the heart of its “asset-light” strategy
The target has to be technologically advanced.
Better yet, centered on technology but with a flair for design—California cool.
I’m confident that I have identified the company that meets those attributes.
In addition, the target is an under-the-radar company that will begin manufacturing in late 2022, so it will likely completely miss the supply chain issues.
This target has already inked contracts with a leading key battery supplier and two manufacturing partners, so it is following an Apple-like “asset-light” strategy that should yield profitability as the company scales up.
The target company was founded and is led by a highly respected designer with an international outlook.
Furthermore, Apple and the target have a current relationship with the same manufacturer/assembler, which will smooth coordination.
No supply chain chaos here.
All this and a lot more is in my Cabot Explorer Special Report: Why Apple Will Seal a Mega EV Deal—Sending this Stock Soaring
You can get this report and the identity of Apple’s EV partner and much more free by Joining Cabot Explorer.
Not to mention a steady stream of outstanding stock picks—some speculative and some conservative.
Here are some examples:
|Virgin Galactic (SPCE)||12/19||260%|
|Taiwan Semiconductor (TSM)||8/20||81%|
|Sea Limited (SE)||2/19||1410%|
Advice from a Trusted Source
The editor of the Cabot Explorer is Carl Delfeld who brings decades of high-level investment, economic and financial experience that he puts to work on behalf of subscribers. The Explorer scours the world for the most important trends and then zeros in on the best stock picks to exploit these trends and make profits. Momentum and management are critical factors in separating the winners from the mediocre and the losers.
At First Bank Boston he was Asia director for the investment bank Robert W. Baird & Company, he developed new business in Tokyo, Hong Kong, and Sydney. Carl then moved to Washington, D.C. to become Asia advisor to Senator William V. Roth, Jr., the creator of the Roth IRA, on the U.S. Senate Finance Committee and U.S. Joint Economic Committee, before serving as a consultant with the U.S. Treasury.
He was then appointed to represent America on the executive board of the Asian Development Bank in Manila. Carl was a co-founder of Pacifica Holdings, an editor and columnist with Forbes Asia and reporter with the Far Eastern Economic Review. He also served as a member of the U.S. National Committee on Pacific Economic Cooperation and was chairman of the Asian Pension Forum. Carl has a master’s degree (MALD) from the Fletcher School of Law & Diplomacy, Tufts University and was a research assistant at the Center for International Studies at Harvard University, with study at Sophia University and Keio University in Tokyo, Japan.
The New Cabot Explorer is published by Cabot Wealth Network, which was founded in 1970 by Carlton Lutts, a disciplined investor with an engineering mind who developed a proprietary stock picking system using technical and fundamental analyses.
Carlton personally researched and wrote the hugely influential Cabot Market Letter, which regularly delivered highly profitable trades to subscribers.
Since then, Cabot Wealth Network has grown to become one of the largest and most-trusted independent investment advisory publishers in the country, serving hundreds of thousands of investors.
The headquarters for Cabot Wealth Network is in Salem, Massachusetts, which was first a home for global maritime trade, particularly to China and the Far East. Salem resident Elias Hasket Derby’s first ship landed in China in 1786. When he died 13 years later, he was the world’s richest man with an estate of what some have said would exceed $31 billion in today’s dollars.
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