Investors Wrongfully Condemn Two Profitable Tech Giants Bearing Steep Labor Costs
We are entering a new era.
Every company is short on labor and the workers they do have are unionizing to demand higher wages, which has created a surge in employer compensation costs in key industries.
We’ve already seen the effects of this in docks and warehouses across the US, with the Transportation Department teaming up with California ports to prevent future snarls by pumping $5 billion into the industry.
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, with new motions to unionize appearing every week, Starbucks being the latest.
On top of the inflation risk that this climate creates, we’ll see companies struggle under the weight of their own employees’ demands as they are unable to stock their shelves. From what I’ve seen this week, any company that recognizes these struggles will see investor backlash – but a lot of it isn’t warranted.
For example, I’m watching Apple Inc. (AAPL) after its stock dropped 4% during the first hour of last Friday’s session.
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, yet investors are still selling off.
The biggest concern for these nervous-ninnies 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, they 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.
If shares of AAPL trade back down to $139.00 by the end of November 2021, buy the AAPL December 17, 2021 Call $140/$145 Call Spread for $2.40 or less.
Plan on exiting the AAPL December 17, 2021 Call $140/$145 Call Spread for a 100% profit, or if shares of AAPL close below $135.00.
Then there’s Amazon.com Inc (AMZN).
I wrote about the company just last week advising you to buy in – and my position on that hasn’t changed.
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%.
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.
With all that additional spending, I think the company might barely make a profit at all, by the end of the next quarter.
All that uncertainty (as well as a fair amount of regulatory chatter coming out of Washington) is showing up in the stock’s performance.
After hitting a 12-month (intraday) high of $3773.08 on July 13, 2021, the stock has been in a downward wedge pattern with support at $3175.00 and lower highs of $3549.99 on September 9, 2021, and $3400.37 on October 20, 2021.
I think we could see another move down to its recent support (at $3175.00) as we make our way through the holiday season.
Don’t get me wrong, I’m not “bearish” on Amazon over the long term, I just think we have a chance to make a quick profit if the stock trades back down to its support in the near term.
I like buying the AMZN December 17, 2021 $3185/$3180 Put Spread for $1.75 or less (they’re currently trading at $1.40). Plan on exiting the AMZN December 17, 2021 $3185/$3180 Put Spread for a 100% (or more) profit, or if AMZN trades back up to $3371.00 (or more).
That’s what I’m watching. What’s on your list this? Let me know at firstname.lastname@example.org.
I’ll see you tomorrow,