A new Goldman Sachs report notes that the pharmaceutical industry may be mandated at some point to make essential drugs here in the United States. It also points out that the Pentagon has proposed legislation that would increase funding under the Defense Production Act to start the process of domestically sourced rare earth materials. There is also discussion about increasing domestic sourcing of defense electronics.
While the prospect of every company moving all manufacturing and supply chain capacity back to the mainland is doubtful, it’s likely many will indeed leave China. The Goldman Sachs report said this:
While we expect select industries and companies to do more onshoring, we believe that many industries will continue to rely on global supply chains albeit with increased use of regionalization and an added emphasis on resiliency. By regionalization, we mean the use of countries near other key geographic areas in the supply chain (for example using Mexico for proximity to the US, or Vietnam for proximity with China). By resiliency of supply chains, we mean things like diversifying the geographic footprint of suppliers, carrying more inventory, and/or qualifying second sources.
The analysts feel that some companies will be “directional beneficiaries” from the increase in regionalization and the onshoring of supply chains. They point to specific companies that could benefit, and five are rated Buy at Goldman Sachs.
This is a health care idea for investors looking to add exposure to the sector. AmerisourceBergen Corp. (NYSE: ABC) sources and distributes pharmaceutical products in the United States and internationally.
Its Pharmaceutical Distribution segment distributes brand-name and generic pharmaceuticals, over-the-counter health care products, home health care supplies and equipment, outsourced compounded sterile preparations and related services to various health care providers, including acute care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and other alternate site pharmacies and other customers.
The company also provides pharmacy management, staffing and other consulting services; supply management software to retail and institutional health care providers; and packaging solutions to various institutional and retail health care providers. In addition, it distributes plasma and other blood products, injectable pharmaceuticals, vaccines and other specialty products; provides other services primarily to physicians who specialize in various disease states, primarily oncology, as well as to other health care providers, including hospitals and dialysis clinics; and offers data analytics, outcomes research and additional services for biotechnology and pharmaceutical manufacturers.
Shareholders receive a 1.64% dividend. Goldman Sachs has a $113 price target on the shares, and the Wall Street consensus target is $101.67. The last AmerisourceBergen stock trade on Friday was reported at $104.45.
This is a pure-play supply chain idea, and the low price makes it very attractive for more aggressive investors. Flex Ltd. (NASDAQ: FLEX) provides design, engineering, manufacturing and supply chain services and solutions to original equipment manufacturers in Asia, the Americas and Europe.
The company provides a portfolio of technologies in electrical/electronics, electromechanical and software, as well as cross-industry technologies, including human-machine interface, audio and video, system in package, miniaturization, Internet of Things platforms and power management. It also designs and integrates advanced data center servers, storage and networking equipment and data center appliances.
In addition, Flex provides value-added design and engineering services and systems assembly and manufacturing services that include enclosures, testing services and materials procurement and inventory management services.
Goldman Sachs has an $11 price objective. Note that the consensus target price is $13.08, and Flex stock closed Friday at $10.98 per share.