5 Stocks Making the Most of Supply-Chain Issues

These stocks stand to gain as businesses move operations closer to home and focus on productivity.

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The economic banishment of all things Russian. Tariffs on Chinese imports. Pandemic-caused shortages of computer chips, bicycles, garage door parts and other imports. Brexit.

Just about everywhere you turn, you can see that the tectonic plates of the global economy have stopped converging and are starting to pull apart in ways that will determine new winners and losers, says Ethan Harris, head of global economics for Bank of America Securities. "Deglobalization is a gradual process, and in the long run, very important" to investors, he says, because it will have profound impacts on corporate profitability.

Globalization refers to the increase of commerce across borders. U.S. companies prospered for decades as new markets opened for their goods and labor costs plummeted thanks to overseas production. Strategists at BofA have estimated that over the past 20 years, globalization has contributed more than half of what has been a robust expansion in profit margins. Globalization has also helped to deliver low-cost goods to American consumers.

But now, says market strategist Ed Yardeni, the pandemic and spreading political and military conflicts have stretched supply chains past the breaking point, prompting companies to bring many operations closer to home. "Deglobalization was almost inevitable," Yardeni says. U.S. companies are starting to "reshore" production back to the U.S., "near-shore" it to neighbors such as Mexico, or "friend-shore" it to allies such as Vietnam.

Investment firm Piper Sandler counted more than 900 announcements of companies either building or expanding manufacturing facilities in the U.S. in the 12 months ending in May of 2022. In 2012, there were only about 100 such announcements. Over the long term, companies should benefit from more-reliable processes. Yardeni predicts that among the biggest winners will be companies with economic bases in the U.S. that leverage cost-saving automation to offset higher wages and energy expenses.

"Globalization 2.0 is more of a rightsizing than the end of globalization," says Jake Oubina, senior U.S. economist at Piper Sandler. Rising interest rates and a threatened recession may slow or pause some reshoring projects. But longer term, he sees a wide-open field for investors willing to bet on a new productivity boom. "Companies are going to find ways to lower their cost structures. We are just at the infancy stages of a productivity revolution."

We found five companies that should benefit from the long-term trend toward deglobalization.

Prices and other data are as of Aug. 5. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

Kim Clark
Senior Associate Editor, Kiplinger's Personal Finance