Brandon Smith, CFA, CAIA, Portfolio Analyst at Boston Partners highlights inflation risks and other trends that are currently shaping the opportunity set for long/short strategies. For questions or additional information, please contact us.
Value Strategies to Turn Supply Chain Challenges into Opportunity
Catalysts in Play: The Covid-19 pandemic has wreaked havoc on global supply chains. The pressures may have peaked, at least temporarily, but ongoing labor shortages continue to hinder the transportation and logistics industries. Moreover, the shift in consumer spending – from services to goods – is only exerting more pressure on fragile and lean supply chains.
The impact can be felt across the economy. The Consumer Durables and Consumer Staples sectors, however, stand out as among the hardest hit, as supply shortages and inflationary pressures restrain revenue growth, while added logistics expenses weigh on margins.
Despite the headwinds, opportunities are now surfacing that will create winners both directly, from the supply chain challenges, as well as indirectly, as consumers and other industries cope with the new reality.
Freight Forwarding / Logistics: Among the direct beneficiaries, for instance, are the freight forwarding operators. Beyond just the tailwinds taking form to solve the supply chain gaps, the larger players in this segment benefit from economies of scale and should be able add to their market share through their geographic reach and reliability.
Auto Parts Retailers: One of the most exposed areas to the supply chain crisis has been the auto manufacturers. As the availability of new cars has been squeezed the average age of automobiles on the road has grown. This is benefitting the auto parts manufacturers and retailers serving the used car market and playing a key role to meet the surging demand for replacement parts. By the same token, auto parts manufacturers supplying the original equipment manufacturers (OEMs) are exposed to the ongoing production cuts.
To identify the prospective winners and losers in these and other segments, we believe a combination of fundamental and quantitative techniques can identify the names best positioned for sustained revenue and earnings performance and may have catalysts in place for future growth. Given the turbulence created, mispricing opportunities abound.
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