There’s No Easy Way Out, But This Pick Should Benefit From Shortages
Is it just me, or can nobody find the items they’re looking for?
Everyone has gotten so used to being able to order what they need online and having it delivered to their doorstep in less than 48 hours. But now, we’ve had to experience the utter shock of not being able to do so anymore.
If you recently ordered dog food, paper towels or any tissue products, chances are you
had to wait weeks for it.
And if you’re brave enough to even visit a car dealership right now, you probably had to compromise on the color of your new vehicle or were told it’d be at least another month before there’d be one you could drive off the lot.
These supply chain disruptions go back to the very beginning of the pandemic when factories and manufacturers all around the world were forced to either cut the number of staff working to ensure safety or suspend operations completely.
This also led many shipping companies to reduce their schedules in anticipation of a huge drop in demand…
But as the virus quickly spread and governments imposed stay-at-home orders, many of us went straight to our local grocery stores to fill up our carts and stock up on things like toilet paper, milk, bread and disinfectant products.
The first wave of panic-buying eventually settled, but in some ways it seems like shelves have been hit harder this year than the previous two…
We’re now grappling with a baby formula shortage, as if all of the other bottlenecks haven’t already made things difficult enough. It’s estimated that baby formula inventory is down 40% nationwide.
When will the supply chain issues end?
The truth of the matter is that no one really knows, but there are unfortunately many reasons to believe they’ll stick around for the foreseeable future.
So this week, I’m recommending we sell puts in Abbott Laboratories (ABT), a stock that stands to benefit from the most recent supply chain shortage.
Abbott Labs is a Chicago-based medical device and health care company that’s known for its diagnostics, medical devices, nutrition products and branded pharmaceuticals. Some of its well-known brands include Pedialyte, Ensure, Similac and Glucerna.
The company reported strong first-quarter earnings and revenue last April that easily beat Wall Street’s expectations.
Abbott’s revenue came in at $11.9 billion — that topped analysts consensus of $11 billion in revenue and gave the company a 13.8% year-over-year growth rate.
In fact, the only division that did not report revenue growth in the first quarter was nutrition. It recorded $1.9 billion in sales, which is about a 7% decline from the same time period one year ago…
But it is only because the company recalled baby formula made at one of its plants…
This happened after the U.S. Food and Drug Administration told consumers not to use specific infant products, such as Similac, following four cases of Cronobacter, a bacteria that can cause inflammation around the brain, blood poisoning, or an intestine infection, in infants who consumed the products made in its Michigan plant.
The company stated that its products weren’t linked to these infections; however, it still didn’t help the ongoing nationwide formula shortage.
To help mitigate and ease the baby formula shortage, the FDA gave Abbott the green light to reopen its manufacturing plant in Sturgis, Michigan last month after meeting “initial requirements.” The company said it’d take two weeks to restart the plant and another six to eight from the start of production for formula to make it onto shelves.
Despite this setback, analysts remain bullish on the stock…
Abbott has 10 strong “buy” recommendations, which means that it is expected to dramatically outperform the broader market and beat the return of similar stocks within its sector and industry.
The stock is also on an Income Trader Volatility (ITV) “buy” signal, which means now is an ideal time to benefit from selling put options.
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