We see a lot of hype around popular industries like genomics, semiconductors, or cars, and often these hyped-up stocks end up becoming scarily overvalued.
Another way to invest in growing and hyped-up industries is to invest into companies that produce the supplies for these industries, rather than the big-names at the face of it. Not to mention, you're more likely to win if you invest in a supplier versus one of the many small cap companies looking to get in on the next big thing. In some industries, like electric cars, the hype has already consumed supply such as lithium battery stocks.
This discussion is primarily inspired by /u/Thereian's comment describing these kind of stock picks:
ENTG - Semiconduct manufacturing supplier. They supply all major players. Lots of battles going on in this industry but no matter who wins (Taiwan Semi, Intel, etc) they get paid. And all of the investment that Intel and Taiwan Semi are making to build billions of dollars worth of FABs? Yeah, Entegris will get their chunk of that money. They sell the equipment upfront and the consumables going forward. Truly a fantastic company, I've owned since 2009 and am still completely bullish.
TMO - Similar to the above philosophy. Lots of expensive cell and gene therapy companies out there, those are high risk. But there's a low-risk high-reward play: Thermo Fisher. Just like ENTG in the example above, Thermo is a supplier to the whole industry. While those biotechs remain unprofitable, the suppliers are getting paid and Thermo is making absolute bank in a rapid growth industry and yet it trades at a PE of 20...absurd. It'll double or triple in a couple years.
I'm an engineer focused on raw materials, so I'm a bit biased but I have seen suppliers make money hand over fist while the companies buying these things are burning cash or barely scraping by. Thats what drove me to look in to high-moat suppliers in the first place and I will continue to.
Do you agree with this investment philosophy? What are some other supplier stocks you hold or have looked into?
Submitted September 16, 2021 at 12:34AM by AristotleKarataev https://ift.tt/2XmHuco
