There are plenty of obvious reasons why future doctors and virologists will be reading about the coronavirus pandemic for decades to come.
But I think economists will be studying this era for the next 100 years, easily, and probably a lot longer. They’ll have a field day analyzing the consequences of massive disruption to the world’s just-in-time supply chain; the Glitch That Launched 10,000 Economics Masters’ Degrees.
Right now, though, this situation means investors have some hard choices to make. Plenty of companies are not going to make it through this unscathed, no matter how much press you hear about “contingencies,” or how the disruptions “aren’t a big deal.”
Earnings from this most recent quarter make it clear that there’s some trouble brewing – and consequences that won’t be put off much longer.
That’s why I’m making a “Sell” recommendation on these shares today…
Everyone Is Short of Everything Now
The shortages most of us saw in the beginning of March 2020, when it was tough to find toilet paper, were just the start of a disruption that continues to this day. Eighteen-plus months later, and some of us can’t get our decks re-done, and holiday shopping looks iffy.
There are labor shortages worldwide; workers holding out for more money, workers caught up in COVID-19 shutdowns, workers with visa problems, workers with childcare problems.
There are shipping disruptions; ships like the Ever Given don’t often get stuck sideways in the Suez Canal, but there’s a near-constant shortage of port and dock workers from Shanghai to Los Angeles. This past weekend, we saw striking images of dozens upon dozens of container ships idling off the coasts of the ports of New York and Long Beach, waiting to be unloaded.
And there are raw materials shortages, because there aren’t always enough workers to produce or extract them, let alone enough ships to get them from A to B. There are constant bidding wars on raw materials and shipping, both of which manifest as higher prices for consumers.
It’d be disingenuous to point to one single force as the culprit. I could go on, but A.P. Moller-Maersk CEO Søren Skou pretty much hit the nail on the head when he said the sources of disruption were “everywhere” in the global supply chain.
Most experts weren’t sure how long these disruptions would last when they became apparent; some talking heads in March 2020 said “things will be back to normal in three weeks,” whereas other, more bearish analysts said the problems were “permanent, a fact of life from here on out.” The truth is somewhere in between, and the delta variant of the COVID-19 virus is a big X-factor here, but most credible estimates point to problems persisting until at least the middle of 2022.
That’s a long time to wait when you’ve got sinking stocks in your portfolio; these disruptions are weighing on certain stocks now, especially this one…
Unload Your Shares – Just Do It
Nike Inc. (NYSE: NKE) is just one stock in serious trouble today, and its latest earnings call should really be seen as a canary in the coal mine for lots of other companies with global supply chains.
Nike earnings last week were a very mixed bag; there were beats on income but misses on revenue – and lowered guidance, too. It cut its full-year sales outlook during a time of virtually unprecedented demand. Pre-delta, Nike had been expecting double-digit revenue growth, thanks to that demand, but now expects it to grow by less than 10%.
On its earnings call last week, company honchos pointed to a shortage of shipping containers and locked-down workers – labor shortages and port and transportation congestion. The time it takes for Nike to ship products from its Asian factories to North American consumers is now 80 days – about double the pre-pandemic travel time.
In order to salvage some semblance of a holiday season, the company said it’s planning to spend more on air freight, as opposed to ships. That’s going to eat into profits, too.
Will the disruptions last forever? I don’t think so. Could they last a long time yet? Definitely. Owning Nike, a stock that’s up less than 6% for the year, throughout the global supply chain misery, is a lot to ask; its 0.7% dividend – less than one-fifth the official inflation rate – doesn’t really make a compelling case for sticking it out, either.
Sell Nike at market, for whatever you can get for it. The company is in reasonably strong financial shape, and I think it has the power under the hood to weather the supply chain disruptions and ride out the storm – but don’t stay along for the ride. Instead, revisit this stock in mid-2022, when, maybe, it’ll be time to get back in.
