We have all come to the conclusion that this reactor accident won’t be as bad as originally feared (though this idea seems to be tested on a daily basis) and are moving past the indigestion associated with the infrastructure rebuild required. I call this Stage 1.
Now we are chewing on Stage 2, the idea that near term sales of just about everything will go down, and that this is simply demand push to 2H11 which will now be better than originally expected. To be clear, this demand push idea suggests we have a SUPPLY issue, not a demand issue, for 2Q11. I am not so sure about that, but I am in agreement that we have industry supply issues in specific areas.
We have yet to come to the conclusion that the non-Japanese supply chain is large enough to fill the gap and mitigate the sales decline expected in 2Q11. Any gap fill likely comes at higher input costs as Japan-led JIT philosophies fall away to supplier diversification and nominal industry inventory levels rise. In any case where gap fill occurs at similar or lower prices, Japanese vendors will permanently lose market share.
While I have no idea what is priced into stocks, some of the obvious ones are starting to show signs of life.
I am staying away from DELL as we don’t know how higher component costs will offset higher sales. Lower component costs were the driver of the margin upside this past quarter and there is risk this reverses soon. I won’t short it because the stock is stupid cheap, but will instead wait for more clarity before chasing it again. I suspect we get a shot at 14 or lower again sometime soon.
