Stocks to Watch: 3 At-Risk Companies That Rely on Red Sea Shipping Routes

Stocks to sell

The shipping crisis forming from disruptions in the Red Sea could impact several U.S. stocks. Despite the U.S. not importing much from the Middle East and trade from China being rerouted, many companies still rely on supply chains passing through the region. While the U.S. is expected to be largely immune from Red Sea shipping issues, Europe is not. This creates a risk factor for stocks that could be affected by Red Sea shipping disruptions through their exposure to Europe. 

These three stocks affected by Red Sea shipping disruptions should be in investors’ sight as further escalation could introduce additional pressure.

Tesla (TSLA)

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Tesla (NASDAQ:TSLA) is one of the stocks affected by Red Sea shipping disruptions because it relies on parts shipments from China for European production. The crisis has already caused delays in the shipment of parts, leading to interruptions in production. Tesla had to halt some production and even planned another two-week halt at its Berlin facility.

The production interruptions could impact Tesla’s goal of reaching a production rate of 500,000 cars per year. The factory in Berlin currently produces about 5,000 cars per week. Meaning the planned halt could potentially result in a reduction of around 10,000 cars for the quarter. This makes Tesla vulnerable to further supply chain disruptions caused by the Red Sea crisis.

Tesla reported disappointing Q4 earnings on January 24. Investors showed concern about its ability to maintain its growth trend. The stock trades at a price-to-earnings ratio of 44.4, offers no dividends and 2.9% of its float is currently shorted.

Archer Daniels Midland (ADM)

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Archer Daniels Midland (NYSE:ADM) is the second pick of the stocks affected by Red Sea shipping disruptions. However, this is due to its exposure to Egypt through soybean exports. The Red Sea crisis poses a risk to ADM’s soybean business, potentially impacting its financial performance. The company experienced a decrease in its soybean business income last year too. 

Egypt is one of the largest soybean markets for U.S. exporters. The Red Sea shipping crisis could potentially impact its economy as revenues from the Suez Canal plummet. The country generated $9.4 billion in revenue in 2022, about 2% of its GDP, with nearly a quarter attributed to exports through the canal. Additionally, the Egyptian economy is already facing challenges. The country also heavily relies on foreign currency from the canal to pay for imports like soybeans. These two factors could lead to a drop in soybean demand and further affect ADM’s revenues. 

ADM has not reported its earnings yet. It typically reports at the start of February but has not announced a date so far. Its stock trades at a P.E. ratio of 7.65, with a 3.64% dividend yield. Only 1.22% of the float is shorted, but it represents a 20% change in short interest.

Mosaic (MOS)

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Mosaic (NYSE:MOS) is the final of the stocks affected by Red Sea shipping due to its double exposure to the crisis. Firstly, the disruptions have increased shipment costs as they have to go around Africa, impacting Mosaic’s logistics and transportation expenses. Secondly, the slowing export demand for soybeans can negatively affect their business. This is one of the main products that use potash and is supported by Mosaic.

Mosaic has already taken steps to mitigate the impact by rerouting some shipments. However, the company is based on the Eastern Seaboard of the U.S., making rerouting shipments through the Pacific impossible. Additionally, they import potash from their partially-owned operations in Saudi Arabia, which may also be disrupted further due to the crisis.

MOS’s recent earnings report showed that fertilizer prices are decreasing due to low demand. This could see a rising input cost and impact its bottom line. The company’s shares have fallen 11%  so far this year, around the time the Red Sea issue began. MOS typically reports earnings at the end of February, but a date has not been confirmed yet. It trades at a P.E. ratio of 8.2 with a dividend yield of 2.6% and short interest of only 0.9% of its float.

On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Stavros Tousios, MBA, is the founder and chief analyst at Markets Untold. With expertise in FX, macros, equity analysis, and investment advisory, Stavros delivers investors strategic guidance and valuable insights.

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