An Income Trade To Profit From The Chip Shortage Recovery…
Last week, I wrote about a company, Qualcomm, that appears to be ahead of the supply chain challenges choking many parts of the economy.
This week, I want to look at a company that will benefit from the recovery as those problems ease.
It’s another chip company, as the semiconductor sector continues to struggle with supply chain issues. That makes sense, since electronics require a dizzying array of materials. The chart below shows just the minerals used in an iPhone.
Source: Visual Capitalist
These minerals need to be mined and processed. Then they are shipped to manufacturers who make the chips. That manufacturing process requires additional raw materials along with glues and other chemicals to mold the delicate instruments.
This is something we have largely taken for granted because the process worked so well for decades. Now, there are issues, and we are understanding the fragility of the system.
However, we know that the engineers and managers who created the system will fix it in time. And now is an ideal time to consider stocks that will benefit from the rebound.
How I’m Trading The Chip Shortage
Among those stocks is Texas Instruments Inc (Nasdaq: TXN), which I recently recommended as a trade to my premium Income Trader subscribers. The company makes analog and embedded processing chips used in everything from smart phones to cars.
In the most recent quarter, TXN missed expectations and warned about the current quarter. The company’s CFO told analysts…
The company was operating at a lower inventory level than customer target levels, especially on finished goods.
We’re at 112 days. Our target is 130 to 190 days. So clearly, we’re well below where we want to be.
That’s a little technical but basically it means that there is significant pent-up demand for the company’s products. But TXN won’t meet that demand this quarter.
The company said it expects fourth-quarter revenue in the range of $4.22 billion to $4.58 billion. The midpoint fell short of analysts’ average estimate of $4.44 billion, according to Refinitiv data.
Despite the bad news, the stock held up well.
TXN has been in a trading range. That’s a sign of relative strength for a company that missed expectations and warned analysts to lower expectations for the next quarter.
Now, traders and investors alike could look at this as a reason to buy the stock. While there’s nothing inherently wrong with that, we have a better plan over at Income Trader…
For starters, the stock is on an Income Trader Volatility (ITV) “buy” signal. You can see this in the chart above, where the indicator (red) crosses below the moving average (blue). For those who aren’t familiar with ITV, think of it as a volatility indicator (like the VIX), but for individual stocks and ETFs. So lower volatility is generally a good thing.
That makes TXN an ideal candidate for the trading strategy we use.
That’s why I recently recommended a short-term trade on TXN that will allow us to get paid instantly.
If all goes according to plan, we’ll make about 3% on our capital in 45 days or less. And because this is a short-term trade, we can turn right around and make a similar trade again for even more income. Buy-and-hold investors, meanwhile, would have to hold the stock for an entire year to get paid 2.3% at recent prices.
I believe trading this way is one of the best ways to protect and preserve your capital in an uncertain market like the one we’re in now. It’s easy to learn, and you’ll generate far more income than you ever thought possible. In fact, you could easily generate thousands of dollars per month.