Product shortages rotate, creating fleeting investment opportunities
WASHINGTON – The month of August is now upon us. And as of this weekend, America’s Great Coronavirus toilet paper shortage continues to recede. Ditto the shortage of paper towels, most disinfectants, breads, muffins and the like. But we still run into periodic product shortages. They simply occur in different product areas. But as product shortages continue to rotate, so, too, do potential investment opportunities. And, by extension, the choices families make concerning what they can serve for dinner each week.
Discover current product shortages in person or in the news
One key thing anyone needs to do in the current environment is to follow the news. And by the news, I don’t necessarily mean the so-called mainstream media outlets. They are hyper-focused 24/7 on political obsessions, primarily involved with driving President Trump out of office. Media mavens flood their networks incessantly with this kind of drivel. But, unfortunately, many of their viewers and / or readers could seriously use real-life, on-the-street style information on issues that specifically affect them. These include existing or developing product shortages, whether national or local in nature.
To get a better idea of what products may be developing shortages, you need to shift attention away from controversy. In its place, you need to view or read media sources that deal primarily with business. Specifically, I’m talking about that old business standby, The Wall Street Journal and its competitors both on and offline. Namely, Bloomberg, Fox Business, CNBC, the various Business Insider editions, etc. These, too, carry varying degrees of bias and too much politics. But their emphasis remains taking the daily pulse of business and its ramifications.
True, these news sources cater primarily to investors. But in so doing, particularly during the coronavirus fiasco, they report on companies having trouble obtaining supplies or companies that sell vital products but have been forced, at least temporarily, to shut down either due to raw materials shortages, parts shortages, or a coronavirus outbreak affecting many of their employees.
Aside from creating investment opportunities, product shortages can create dining opportunities
Over a month ago, for example, these sources were reporting on increasing coronavirus issues involving major meatpacking facilities primarily located in the farm belt. If even a few of these huge plants shut down (which, in fact, they did), meat supplies would rapidly disappear from grocers’ shelves. And that’s particularly what happened with pork products, since these were the earliest plants affected. Since then, chicken and beef have taken hits. We are now experiencing at least some shortages of canned tuna products, since a major canning plant was forced to shut down temporarily due to a coronavirus hit.
When you spot reports like this, it’s a clear signal that specific product shortages will occur in rather short order in grocery stores across the country. Which is exactly what happened with pork products. Problems in some chicken plants soon began to cause shortages of chicken after we ran into problems with pork. Etc.
So the moment you glimpse this news, and if pork, for example, is a big-time dinner item at your house, the time to go and stock up is NOW. Waiting a day or two won’t work. That’s because a lot of other people will access the same info and move on the situation immediately by stocking up. Also, this might have been a good time to move into meatpacking stocks, which were sinking at the time but eventually started to recover.
This is just one example of how you need to dig for real news in the business pages or online business sections. In this way, you can stay on top of what companies and products may begin to experience — or cause — shortages that affect you. And your investment opportunities as well.
More on dining by shopping around and learning about current or upcoming product shortages
Another excellent line of defense is simple observation. I have long lived South of the Mason-Dixon line. Every time a fairly rare snowstorm is predicted for our area, store aisles are immediately cleared of paper products, particularly toilet paper. Bread and milk also vanish, seemingly overnight. Why? 2 inches of snow can paralyze a southern city or town, so people immediately dash to the store to stock up on lifetime supplies of bread, milk and paper products. It’s ridiculous overkill, but that’s what people do. People instinctively know that this is how this works.
So when the coronavirus lockdowns were announced, those used to the snow phenomenon in this area made a mental connection and dashed to the stores to load up on, you guessed it, bread, milk and paper products, particularly TP.
In other words, if you keep your eyes open every day, you can see various human behavior patterns develop. And these are often connected with your specific locale. National news, which is coastal-centric in this country, may not pick up on a local shortage phenomenon until it’s already happened. So again, keep your own eyes open when you go about, and always try to access at least one reliable local source for local news.
A longer time horizon insulates against product shortage shocks
Longer term, if you’re anywhere near a Costco, a BJ’s or a Walmart or Sam’s warehouse, you’re fortunate. Your longer-term strategy can adapt a bit of the strategies employed by the preppers everyone loves to laugh at. Head off to the Costcos of the world from time to time, and make sure you stock up on their good deals in bulk paper towels, bulk TP, bulk ground beef, etc. Throw in pasta and rice and select canned goods. Take them home and store them and use them on occasion just to keep the supply line fresh when you re-stock.
You know what your family staples are. And if they include paper products, canned products, freezable food products and cleaning products, stock up at any time you find yourself running short. If you use this stuff regularly, it won’t go to waste. Just make sure you don’t run too short before you re-stock.
If you have the room, a modest-sized freezer can help in this. Stock it with frozen meat and seafood products. Also — despite the current obsession with “fresh, fresh, fresh,” don’t hesitate to by some quantities of Green Giant, Birdseye, and store brand frozen veggies. They microwave in minutes, keep for at least a couple of years in the freezer, retain their nutritional value and taste great. As product shortages rotate, they rotate toward the next shortage. And the next investment opportunities.
More on cyclical investment opportunities in a time of rotating product shortages
Investment-wise, continue to follow the varying arcs of product shortages. Right now, paper product shortages seem to have eased up, while disinfectant and detergent products are still hot and still sometimes hard to get. So you might want to sell of at least partial positions you established in paper products stocks or meat packing companies and move into companies like Clorox (trading symbol: CLX) which are still dealing with brisk sales of cleaning and disinfectant products.
How about oil companies and refineries?
Meanwhile, the media is frantically telling us that nobody is ever going to buy oil or gas products again. This week, the stock of many of these companies like Exxon-Mobile (EXM) and Chevron (CVX) plunged as if they were ready to file for Chapter 11 next week. But, as Mark Twain once joked and I paraphrase, “Reports on the death of Big Oil are greatly exaggerated.”
And they are. Ditto the current stock price of big oil refining companies like Valero (VLO) and Phillips (PSX). These become the next likely investment opportunities, since you can buy them at bargain basement prices. Our portfolios are already nipping into Valero shares, bit by bit. You can do this now, since most online brokerages no longer charge commissions.
People will gradually be getting back on the road again. Winter heating bills will erupt. And fossil fuel prices will again be rising, no matter who gets elected this fall. So now might be the time to keep an eye on these companies, since the shortage rotation will likely head their way soon. They’re all shutting in wells right now and won’t open them again until inventory drops substantially. Which it will.
Airlines, maybe in 2021?
Later on, after a premature upward move in June, airline transportation companies will finally begin to recover. Product rotation will move away from grocery store sales and back into the general world of commerce once again. One airline famed for low prices and local service — Southwest (LUV) — might be among the first airline companies to recover. But don’t jump the gun. Rinse, repeat.
I could go on, but you get the picture. People generally do what they customarily do. You can spot most shortages in advance if you just keep your eyes on what people buy in your area. Just stay ahead of the curve, be aware of what disappears from shelves when there’s even a hint of trouble, read the business pages or watch CNBC or Fox Business for a couple of hours with some frequency, and you won’t have to worry too much.
Hope that helps.
— Headline image: A roll of precious toilet paper: A hot commodity a couple of months ago. Via Wikipedia entry on toilet paper. Photo credit: Brandon Blinkenberg. Creative Commons 2.5 generic license.