Chip scarcity disrupts auto manufacturing, however the seller has a hedge sport
General Motors announced a production stop at several North American plants and Ford announced additional downtime at two plants. These were the most recent disruptions in the auto supply chain due to a lack of chips.
GM’s shares fell 1% on Thursday, the day of the announcement. Ford closed almost 2%.
Both inventories rose by more than 40% over the course of the year, despite ongoing production problems.
JC O’Hara, MKM Partners’ chief marketing engineer, identified a way to get into auto stocks without the risk of headwinds.
“Used car sales go through the roof, so CarMax is a game that I’m very interested in here. It’s a huge used car sales company, and the positive trend in used car sales is reflected in the table,” O’Hara told CNBC’s “Trading Nation” on Thursday.
CarMax has grown by more than 100% in the last 12 months. Shares are up 36% just this year.
Gina Sanchez, chief marketing strategist at Lido Advisors and CEO of Chantico Global, warned that the chip shortage “is something that is unlikely to go away”.
With Ford and GM moving into electric vehicles, Sanchez noted, “The prospects for Ford are significantly better than for GM based on the idea that they are really moving into the electric car realm, but the interesting thing is that electric cars are driving more Need chips, not less. “
“The suppliers just don’t have enough chips in stock because the automatic demand has decreased during Covid. Now they are just on the wrong foot and it is not that easy to just order more chips,” she said in the same interview. “It will likely take months to process and will dampen the recovery of the automotive sector.”
For long-term investors, however, O’Hara said GM and Ford could offer a more stable opportunity against more volatile electric vehicle manufacturers like Tesla.
“We have a chance to switch to names with less volatility. GM and Ford, which are now viewed as EV games. I think you will get a pullback and I think pullback is for sale,” said O’Hara.
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