Cabot Explorer Issue: May 22, 2025

Portfolio Changes: None

Silver Follows Gold

Early this morning, the House passed its massive 1,000-page tax-and-spending bill after party leaders made a series of last-minute changes. The vote was 215 to 214.

The credit ratings firm Moody’s downgraded the United States a notch which means it is no longer “top tier” credit-wise by the standards of any major agency. This reflects concerns about the increasing amount of government debt and the growing cost of managing that debt due to high interest rates and large budget deficits

To my mind, this means that odds are the market will demand higher interest rates in the longer term, which of course piles the pressure on Washington to get a handle on the rising national debt.

The key psychological point is 30-year Treasury bonds at or above 5%.

As I have been pointing out, this is happening at a point where foreigners own about 30% of outstanding U.S. Treasury bonds and roughly 20% of U.S. stocks.

The tariff issues don’t help as, by some estimates, average U.S. rates on Chinese goods are roughly 33% and 18% overall, putting pressure on prices.

But as I will point out during my upcoming June 12 webinar, U.S.-China Trade War: 3 Stocks to Grow Your Portfolio Now, economic security and technology issues are at the heart of the U.S.-China relationship. This means intellectual property theft, cyber espionage, forced technology transfer, dual use risks, supply chain chokepoints, nontariff barriers to U.S. firms, and currency manipulation.

Stock picking will now be at a premium across advanced technologies, including AI, biotech, and quantum, and in critical minerals.

BYD (BYDDY) shares continue to break out, up 10.6% this week. Santander (SAN) shares were up 3% this week and 74% so far this year as the bank reached 100,000 customers in the United States.

The recent attention on the administration’s mission to the gulf states of the Middle East highlights its growing and shifting clout. Producers in the region supply nearly half of China’s crude imports and it serves as a geopolitical corridor linking Asia to Europe and Africa.

More importantly, these states are seeking to move capital into advanced tech and can provide America and China with capital and opportunities to export its technology.

Luckin Coffee (LKNCY) is coming to New York as Starbucks (SBUX) looks at selling or partnering to reduce exposure and improve performance in China. Starbucks has more than 7,750 stores in China which generated about $740 million net revenue in the country in the quarter through March. Luckin’s net revenue was $1.2 billion in the same period.

Another sign of the times was the stock offering of leading Chinese battery maker Contemporary Amperex Technology Ltd., or CATL. A decade ago, Alibaba (BABA) went public on the New York Stock Exchange to great enthusiasm. CATL started selling shares for the first time in Hong Kong on Tuesday, surging 16% with American investors largely shut out.

Today we add a new aggressive recommendation that could add some diversification to your portfolio and has the potential to take off when the timing is right.

New Recommendation

Coeur Mining (CDE)

With gold prices on an extended upward trajectory, silver stocks should also be considered.

Historically, silver prices both lag and follow gold. The silver-gold price ratio is extremely wide and indicates that a silver price catch-up is going to happen.

The gold-silver ratio is an intimate relationship. It indicates how many ounces of silver are needed to buy one ounce of gold. In the last century, this ratio reached its lowest point at just under 15:1 at the end of 1979 and peaked at over 110:1 during the COVID crisis.

For many precious metal investors, silver is seen as gold’s “little brother,” but it has a long history as a means of payment going back centuries as the Spanish silver dollar was once the reserve currency of the day.

This year, we passed the 100:1 mark for only the fourth time in a hundred years – a strong signal that silver may be underpriced.

While gold has reached a historic high, the silver price is almost 50% off its all-time high in U.S. dollars per ounce.

There are limited pure silver plays, and I have chosen a smaller North American speculative play.

Coeur Mining (CDE) is a mining company that explores gold, silver, zinc, and other related metals in the U.S., Canada, and Mexico. Through off-take agreements, it markets and sells its concentrates to refiners and smelters. It stands out as one of the best breakout stocks to buy, owing to the growing demand for gold and silver, which could result in a significant price spike.

In 2024, Coeur Mining executed a deal to acquire SilverCrest Metals in a $1.7 billion all-in-stock acquisition, which is expected to boost financial performance in 2025 as it is expected to contribute about $350 million in free cash flow. With this acquisition, Coeur also gains access to the high-grade Las Chispas mine in Mexico.

The company is close to becoming profitable and the numbers are going in the right direction. It also generated $85 million in free cash flow in the second half of 2024 as it reduced its debt by $80 million.

This is a speculative recommendation and timing a strong turn in silver stocks is difficult.

But looking at Couer Mining’s chart, I note a nice uptrend and that periodic spikes can be explosive.

BUY A HALF

Explorer Weekly Stock Commentary

Below is a brief update on each Explorer stock. Any changes in ratings will be highlighted. This section is all you need to read each week.

Explorer Disrupter Recommendations – need to watch more closely and have a 20% trailing stop-loss in place.

Agnico Eagle Mines (AEM) shares were up 10.4% this week as volatility in stock markets led to a sharp rebound in gold prices. Buy a Half

Santander (SAN) shares were up 3% this week and 74% so far this year as the bank reached 100,000 customers in the United States – a key milestone for its OpenBank digital platform. Santander is adroitly executing its new digital strategy. Buy a Half

BYD (BYDDY) shares continue to break out, up 10.6% this week. Its Blade batteries are a specialized form of lithium ferrous phosphate (LFP) that is supplied to some third-party EV makers such as Xiaomi, XPeng, Nio, and Toyota in addition to Tesla.

Meanwhile, BYD has launched a 1,000-kilowatt superfast charging technology, twice the charging power of Tesla’s V4 Supercharger. It can charge at 2 kilometers per second, providing essentially a full charge in roughly five minutes. Buy a Half

Dutch Bros (BROS) shares were up 21.4% last week but down 10% this week despite announcing last week that quarterly revenue grew 29%. Shares have nearly doubled in the past year due to the healthy growth in the company’s top and bottom lines. But the stock is very expensive right now so I suggest you sell some shares to lock in gains. Hold a Half

Luckin Coffee (LKNCY) shares were steady this week and the company is coming to New York as Starbucks (SBUX) looks at a potential partnership to reduce exposure and improve performance in China. Starbucks has more than 7,750 stores in China which generated about $740 million net revenue in the quarter ended in March. Luckin’s net revenue was $1.2 billion in the same period and the Chinese coffee store chain now has more than twice as many outlets. First-quarter same-store sales were up 8.1%, operating margins expanded 8%, and the company opened 1,750 new kiosk and retail stores during the quarter. Buy a Half

Mitsui (MITSF) shares were up 5% this week as a Wall Street analyst upgraded the stock to a strong buy. Mitsui has assets of $112 billion, $6 billion of profits, and $7 billion of operating cash flow. Despite all these strengths, Mitsui stock trades barely above book value and at less than 10 times forward earnings. Buy a Half

Sea Limited (SE) shares were steady this week after three nice consecutive weekly gains. In its latest quarter, Sea reported net income of $410 million compared with a year-earlier loss. Sales climbed 30% to $4.84 billion, roughly in line with estimates. Hold a Half

Subaru (FUJHY) shares were unchanged this week as management said it is reviewing its investment plans in the wake of tariffs, including the development of EVs. Bloomberg reports that Japan’s carmakers are looking at a hit of more than $19 billion from tariffs that are impacting the global auto industry, though Subaru makes most of its vehicles it sells in America. The stock is still trading at about five times trailing earnings and about 70% of book value. Buy a Half

Explorer Dominator Blue-Chip Recommendations – More Buy and Hold

DBS Bank (DBSDY) shares were unchanged this week as the bank’s CEO warned of the potential impact of tariffs on its business going forward. DBS just had a solid quarter and is still looking at loan growth of 5% to 6% this year. Buy a Half

International Business Machines (IBM) shares held up this week in a tough market as IBM’s ongoing alliances with major industry players like Oracle and Lumen Technologies, dividend increases, and progress in AI technologies have supported the stock’s momentum. Buy a Half

Visa (V) shares were up slightly this week. During the first quarter, it posted a 9% increase in revenue to $9.6 billion, payments volume rose 8%, and the company announced a $30 billion share buyback program. For the fiscal year ending in September, analysts expect Visa’s earnings to climb 12.7%. Buy a Half

Watch List – Stocks we like but do not follow day-to-day

ConocoPhillips (COP), Franco-Nevada (FNV), MOOG (MOG-A)

Explorer ETF/Fund Positions

Grayscale Bitcoin Trust (GBTC) offers investors a way to track very closely to the day-to-day or “spot” movement of bitcoin prices. For aggressive investors comfortable with volatility. Buy a Small Allocation

JPMorgan Equity Premium Income ETF (JEPI) offers double-digit yield coming from both option premiums and dividends using a value-focused strategy. Buy a Full

Morgan Stanley China A Share Fund (CAF) offers exposure to a basket of top Chinese-listed stocks. Buy a Half

Oberweis Micro-Cap Fund (OBMCX) fund stands out for several reasons. The fund’s sound investment process and strong management team earns it a rare Morningstar Medalist Rating of Gold. Over the past five years it has posted an impressive average annual return of 24%. Buy a Half

Sprott Platinum and Palladium ETF (SPPP) offers direct exposure to both platinum and palladium which are selling at a sizable discount to gold offering potential upside appreciation. Buy a Half

Stoxx Europe Total Market Aerospace & Defense (EUAD) tracks an index of top defense contractors including Leonardo, Rheinmetall, and BAE Systems. Buy a Half

VanEck Junior Gold Miners ETF (GDXJ) is a basket of junior miners that has 84 positions with the top 10 accounting for 44% of total assets. Half of the stocks are Canadian, 21% Australia, and 7% from South Africa. Buy a Half

WisdomTree Emerging Markets High Dividend Fund (DEM) offers a high dividend yield and some of the highest quality emerging market stocks. Buy a Half

Model Portfolio

ETFs

Explorer Stocks Summary

Brief company summaries that will not change week to week.

Agnico Eagle Mines (AEM) follows a conservative strategy and with a history spanning more than 60 years, and now operates a sizable portfolio of 11 assets located in four countries. Management forecasted gold production of approximately 3.45 million ounces in 2024. The company estimates it has about 54 million gold ounces of proven and probable reserves. Furthermore, Agnico Eagle has paid a dividend for 41 consecutive years with a dividend compounded growth rate of 23% per year since 2005 and paid a dividend of $1.60 per share in 2024.

Banco Santander (SAN) was founded in Spain in 1857. The bank’s U.S. headquarters is in Boston, but its strength lies in Latin America and Europe where it has more than 8,000 branches with 171 million customers as well as 58 million digital accounts. About 55% of deposits and loans are in Europe with the balance in Latin America. In its most recent quarter, Santander’s revenue was up 8% while net profits increased 16%.

BYD (BYDDY), in both 2021 and 2022, more than tripled sales from the previous year. That’s hyper growth and including hybrids, BYD has already surged past Tesla in terms of sales. Most of BYD’s sales are still in China but it has a big international expansion underway, including in the U.S., Europe, and Asian markets. BYD will also launch a next-generation Blade battery in 2025, with longer range and faster charging. That, along with various other models, could help rev up BEV sales growth next year. BYD expects solid-state batteries for high-end models by 2027, but not fully reaching lower-end models until 2030-2032.

Watch List: ConocoPhillips (COP) is a global energy industry giant and one of the largest independent exploration and production (E&P) companies in the world, as measured by production levels and proved reserves. The company, founded in 1917 and based in Houston, has operations in 13 countries, although almost half the company’s production is derived from U.S. sources.

DBS Bank (DBSDY) is one of the largest banks in Southeast Asia with a presence in 19 markets. It is headquartered in Singapore, with its main listing on the Singapore Stock Exchange, and is the largest constituent of the Singapore Straits Times Index. The Government of Singapore established DBS in July 1968 and its largest and controlling shareholder is Temasek Holdings, which is one of two large sovereign wealth funds controlled by the Government of Singapore. DBS has assets of roughly $750 billion and a growing presence in the three key Asian areas of growth, which it defines as Greater China, Southeast Asia, and South Asia, meaning India. It is the largest and strongest bank in Southeast Asia and the leading consumer bank in both Hong Kong and Singapore.

Dutch Bros (BROS) is an operator and franchisor of drive-through coffee stores, with 1,012 stores as of the end of the first quarter, including 30 that it opened in the quarter. It’s expanding at a steady pace, expecting as many as 150 new stores in 2025, and it envisions up to 7,000 stores over the next 10 to 15 years.

Watch List: Franco-Nevada (FNV) is a company with more than half of its revenue coming from gold, but it also offers exposure to platinum, silver, and oil and gas. Franco-Nevada’s focus on royalties and streaming reduces risk and enables it to sidestep the huge capital costs that impact traditional miners. It enjoys cash flow and profits as its mining partners finance and complete exploration and expansion projects. That cash flow enables it to invest in new deals, pay a dividend, and operate debt free. Franco-Nevada has increased its dividend each year since its IPO in 2008.

International Business Machines (IBM) is a blue-chip artificial intelligence (AI) and India play with a nice dividend yield. Known as “Big Blue,” IBM now primarily helps businesses and governments manage their information technology in the cloud era. The stock sells at a discount to the S&P 500 multiple and the information technology sector’s forward earnings multiple. IBM has paid a dividend every quarter since 1916 and has had 30 consecutive years of dividend increases.

Luckin Coffee (LKNCY) is a leading purveyor of coffee and specialty drinks in China. The price of a cup of Starbucks coffee is more than double that of Luckin coffee. In addition, Luckin is adept at adapting to local tastes and launching new products that broaden the market. For instance, it brings to market about 60 new products each year, offering a new drink every week. Its new coconut latte sells nearly $140 million worth annually. All this shows in the numbers as Luckin’s latest quarter revealed strong sales and store count growth.

Mitsui (MITSF) stands out among the big five by leaning into mining and materials. Mitsui has entered joint ventures around the world, taking project stakes in iron ore, metallurgical coal, copper, nickel, and LNG with 50%-60% of profit coming metals and energy. But Mitsui’s chairman emphasizes that Mitsui is not a resource company. Rather he describes the company as a place where smart people identify new trends and pursue big profits through small experiments. For example, Mitsui owns 33% stake in IHH Healthcare, the largest hospital group in Asia, and 17% stake in Penske Automotive in North America. Other sectors of activity include energy, infrastructure, agriculture and food, and consumer retail.

Watch List: Moog, Inc. (MOG-A) supplies advanced primary flight controls on the most modern military aircraft. That includes the Lockheed Martin F-35 Lightning II and the Future Long Range Assault Aircraft program. The company’s major platforms include the 787, A350, Joint Strike Fighter (F-35 Lightning II). The company also supplies primary flight controls for the Boeing 787 and Airbus A350 widebody aircraft, as well as business and regional jets from Embraer (ERJ) and Gulfstream, owned by General Dynamics (GD).

Sea Limited (SE) has three core businesses: 1) digital gaming/entertainment, 2) e-commerce, and 3) digital payments and financial services, known as Garena, Shopee, and Monee, respectively. Garena is a leading global online games developer and publisher. Shopee is the largest e-commerce platform in Southeast Asia and Taiwan. Monee (formerly SeaMoney) is a leading digital payments and financial services provider in Southeast Asia.

Subaru (FUJHY), based in Tokyo, holds a 10% market share in Japan, making it the third-largest automaker in the country. In America, the Subaru brand has a cult-like following and Subaru’s stock sells for only five times trailing earnings and about 70% of book value. It also sports a 3.9% dividend yield, has a market value of $13.4 billion and has a strong balance sheet with a net cash position of $7 billion.

Visa (V) doesn’t extend credit but provides the plumbing for financial payments and communications throughout the world. Visa’s financial infrastructure also underpins much of the world’s commerce. The duopoly between Visa and Mastercard is often referred to as one of the best businesses in the world, with insurmountable moats, low operating costs, and plenty of opportunities for unlocking additional value. Visa currently trades at a discount to its archrival MasterCard.

The next Cabot Explorer issue will be published on June 5, 2025.

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