We are entering a new era – and the sooner investors come to grips with it, the better off they’ll be.
The pandemic-era “The Great Resignation,” has changed the landscape. Millions of workers are holding out for a better deal, or just up and leaving altogether.
Just about every company is short on labor, and the workers they do have are unionizing to demand higher wages. This has created a surge in employer compensation costs in key industries.
According to the Bureau of Labor Statistics, the average employee costs $40 per hour worked to retain – that includes wages, paid leave, and insurance costs. And workers are making it very clear that they want more, and there are new motions to unionize appearing every week, including, most recently, at Starbucks.
This creates an inflationary climate – we’ll see companies struggle under the weight of their own employees’ demands.
The other “fist” in this one-two punch is the ongoing supply chain crunch, and you better believe I’m referring to the persistent semiconductor shortage there, too.
From what I’ve observed over the past week, any company that recognizes or acknowledges these problems will be mercilessly punished by investors in a significant backlash.
Here’s the thing, though: A lot of that negative sentiment isn’t warranted at all. So what we’ve really got here are some fantastic profit opportunities on some great stocks skittish investors have unloaded lately.
How to Play These Two Great Stocks
I’m looking hard at Apple Inc. (NASDAQ: APPL), after its stock dropped 4% – off a cliff – during the first hour of Friday’s trading.
The company reported its fourth-quarter results with solid revenue. It earned $89.4 billion, which was up 29% over the same quarter last year. These are dynamite numbers, any way you slice it, and yet investors are still selling off as of midday Monday.
The biggest concern for these nervous nellies appears to be AAPL’s commentary regarding the ongoing chip shortage’s impact on the company and future iPhone 13 sales.
It’s not like the company had a bad quarter. On the contrary, Apple set records these past three months in all of its geographic segments and product categories, despite everything going on with the supply chain.
So, to be frank, I’m not concerned about iPhone sales numbers. Demand for the product is robust, and once the chip shortage is resolved, the company will bounce back in line with or above analyst expectations.
All the sell-off is doing is giving us an in. I think the stock could trade even lower before making another push.
Buy here, and all the way down to $135 before reevaluating.
If shares of AAPL trade back down to $139 by the end of November 2021 – and the stock is within $9 of doing so today – buy the AAPL Dec. 17, 2021 $140/$145 call spread for $2.40 or less.
Plan on exiting that spread for a 100% profit, or if shares of AAPL close below $135.
The other company in play right now is none other than Amazon.com Inc. (NASDAQ: AMZN). I told my free Total Wealth subscribers to buy or add to their positions just last week, and my recommendation on that hasn’t changed a bit in the meantime.
If you can’t buy the $3,329 stock outright, by all means build a position with fractional shares. Whatever you do, buy, buy, buy at these levels.
The company reported its third-quarter results after the markets closed on Thursday and, just like AAPL, it missed analyst expectations by about $1.2 billion and share values dropped 4%. It’s down another 1.3% at midday Monday.
After investing in itself to satisfy customer demand during the pandemic, the company now expects to incur several billion dollars of additional costs as it tries to manage labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs.
Its biggest “mistake” was being frank and upfront with investors in telling them this on the call. So much for rewarding transparency.
But still – with all that additional spending, it’s possible Amazon barely books profit at all, by the end of the fourth quarter.
Near-term uncertainty is the spoiler here.
After hitting a 12-month (intraday) high of $3,773.08 on July 13, 2021, the stock has been in a downward wedge pattern with support at $3,175 and lower highs of $3,549.99 on Sept. 9, 2021, and $3,400.37 on Oct. 20, 2021.
I think we could see another move down to that recent $3,175 support level as we make our way through the holiday season. That puts us a bit more than 4.5% lower than today’s prices.
Buy here, and all the way down to $3,175 before taking a breather. Again, buy fractional shares if you have to.
To boost your profit potential, look at an AMZN Dec. 17, 2021 $3,185/$3,180 put spread for $1.75 or less (they’re currently trading at $1.40).
Plan on exiting the spread for a 100%-or-better profit, or if AMZN trades back up to $3,371 (or more).
Do not – repeat, not – get me wrong. I’m not even remotely bearish on Amazon’s long-term prospects. It’s just that we have a really good chance to dollar-cost average in, and an equally good chance at making a big, quick profit if AMZN shares trade back down to support in the near term.
Playing stocks like this is all about seizing the opportunities that come your way – you’ll end up kicking yourself if you miss out.
— Shah Gilani
Source: Money Morning