The hunt for a new phone or car may get more stressful.
Investor Paul Meeks warns Wall Street is underestimating the semiconductor shortage. He believes it’ll take years instead of months to get resolved.
“This might be a problem that persists deep into 2023,” the Independent Solutions Wealth Management portfolio manager told “Trading Nation” on Friday.
Meeks, known for running the world’s largest technology fund for Merrill Lynch during the dot-com bubble, expects a painful fallout.
“Some of these companies actually will not be able to ship units. And if they can’t ship units, they might disappoint on their earnings,” he said. “Their stocks are so expensive that they could go down. Not go down a bit, they could go down a lot.”
While corporate America and consumers try to cope with the supply chain frustration, semi stocks are rallying. The VanEck Vectors Semiconductor ETF, which tracks the group, is up 35% over the last six months.
Meeks overweighted chipmakers in early June 2020 — months before supply shortages made front page news. He predicts the stocks have even more room to run.
“I also like semiconductor capital equipment,” he said. “But you have to be a sharpshooter because not only do you have to judge if their products are in favor or out of favor… you also have to figure out who has best executed their supply chains.”
Meeks lists Broadcom and Microchip Technology as examples of companies that successfully adapted their order processes prior to the depths of Covid-19.
While Meeks is positive on semiconductors, he’s worried about FAANG, particularly Apple.
“About 50% of their business still comes from the iPhone,” noted Meeks, who also teaches finance at The Citadel. “They have a great shortage that has cost them many billions of dollars of revenue last quarter.”
He sees the issues ramping up this holiday season and a lot of disappointed consumers who won’t get purchases on time.
“It’s a bummer and unfortunately, there’s not any relief,” said Meeks. “It’ll also hit the top and bottom lines of some of these vendors that are selling those hot Christmas products.”
Meeks views Google as the only FAANG stock he would consider buying with new money right now. He cites benefits to the digital ad industry rebound.
“And, [it] doesn’t have Facebook‘s regulatory issues,” he added. “Frankly, the rest of the FAANGs, I would maybe hold if you held them. But I wouldn’t buy them with fresh cash.”
Meeks would also stick with Microsoft.
“It’s obviously very expensive particularly for a company that has never traded at these kind of valuation multiples,” said Meeks. “But they’re doing all the right things. Brilliantly managed.”
Microsoft shares are up 15% over the past month and 51% so far this year.
Disclosure: Meeks owns Apple, Microsoft, Alphabet, Meta Platforms, Amazon, Broadcom Technology, Microchip, Taiwan Semiconductor, Applied Materials.
