How to defend yourself against the supply chain crisis

Advanced Micro Devices (AMD) designs microprocessors for the personal computer and data center market and delivers the chips found in major game consoles such as Sony PlayStation and Microsoft Xbox.

Morningstar analysts acknowledge AMD one Economic moat to the extent of Medio because of the value of its licenses for the production and design of the chips that enable it to achieve generous margins on sales prices. The company outsources some of its production to third parties such as Taiwan Semiconductor Manufacturing and GlobalFoundries and has recently invested heavily in securing its orders (add link).

“Management has recently confirmed the estimated revenue growth for 2022, corresponding to + 60%, and the forecasts for the next five years, where we expect an average revenue growth of 20%, higher than our expectations. The expansion of the chip market, which is expected to exceed $ 300 billion over the next few years, will drive sales, ”said Phelix Lee, a stock analyst at Morningstar (report updated June 20, 2022).

The stock has sold almost 40% since the beginning of the year (in euros as of July 7, 2022) and is now down 40% compared to the fair value of $ 130.

Title: General Motors
Are you: US37045V1008
Morningstar rating: 5 stars

General Motors does not enjoy a competitive advantage, but Morningstar analysts are convinced that the strategy the US group has set out can translate into revenue growth in the coming years.

“The closure of some factories and the shift of the workers’ pension fund to a fund separate from the company’s management has enabled GM to increase economies of scale and improve profitability. In addition, General Motors is among the manufacturers at the forefront of the transition to the electrical segment. Management has announced the goal of selling only zero-emission vehicles by 2035, confirming $ 35 billion investment for the five-year period 2020-2025, ”said David Whiston, an equities analyst at Morningstar. GM’s intention, analysts add, is to become a “car data company” rather than just a carmaker. The acquisition of Cruise, which offers a self-driving robo-taxi service, places it in the segment of ride-hailing along with the most famous Uber and Lift platforms, while the OnStar platform makes it possible to enter the insurance sector through the collection and management of vehicle data.

The company is also investing in developing its own battery technology for electric vehicles that will give it a greater degree of independence from component supplies.

The stock is currently trading at a discount rate of over 50% compared to the fair value of $ 70 estimated by analysts (report updated to July 2, 2022).

Title: Mattel
Are you: US5770811025
Morningstar rating: 4 stars

Mattel is one of the largest companies in the toy industry. Its size allows it to finance new products, expand into high-growth emerging markets and make acquisitions. In addition, the brand portfolio makes it possible to utilize partnerships with TV and film production companies. For these reasons, Morningstar analysts recognize that Mattel has a competitive advantage (Economic moat equals Medium).

The cost rationalization program has in recent years made it possible to significantly improve the profit margin and save resources invested to further raise the strength of its brands. Morningstar analysts see rising inflation and the commodity supply crisis as the biggest threats to its short-term viability, but they acknowledge the firm’s decision to invest $ 50 million in a manufacturing facility in Mexico (link to the piece).

Analysts expect an average revenue growth of 5% and an operating margin to expand from the current 14% to 15.6% in 2026 over the next five years and estimate a fair value of $ 27.50 (report updated to May 2, 2022 ). The stock is currently trading at a 15% discount rate and is rated with a 4-star Morningstar rating.

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