Weekly Stock Roundup
Portfolio Changes: None
Centrus Energy (LEU) surprised investors as it came out with a quarterly loss of $0.42 per share versus the Zacks consensus estimate of $0.78. This compares to earnings of $2.95 per share a year ago. The huge earnings miss led to a sharp correction to the stock yesterday because expectations were high since a quarter ago Centrus delivered a positive surprise of 214%. Making matters worse, Centrus posted a net loss of $6.1 million on revenue of $33.2 million in Q3 2022, compared to net income of $42.1 million on $91.3 million in revenue in Q3 2021. Centrus’ CEO commented that “our third-quarter results reflected the typical lumpiness attributable to the timing of customer deliveries.” It sure seems as though the market overreacted to a bad quarter. Centrus has cash of $115 MM and debt of $150 MM and the stock remains a buy at this point for aggressive investors.
Ford (F) shares were steady this week as the company is still seeing strong demand, growing its revenue by 10% year over year in Q3. The stock was up 19% in October but still faces supply chain challenges.
Infineon Technologies (IFNNY) shares were up just over 16% this past week and are outperforming the semiconductor index due to the company’s focus on auto rather than electronic markets.
Kraken Robotics (KRKNF) was unchanged and booked a couple of nice undersea contracts this week.
Marvell Technology Group (MRVL) started the week strong but pulled back over the last two days to where it began the week at 37.
MP Materials (MP) shares were up this week after the company reported solid third -quarter rare earth sales and production volumes. Revenue was up 25% year-over-year and net income increased 48%.
Sociedad Química y Minera de Chile S.A. (SQM) was up over 15% this week to break 100, powered by both lithium prices and strong demand for fertilizer. Have a 20% trailing stop-loss on this one.
Toyota Motors (TM) shares should benefit from the Japanese yen falling to a three-decade low against the U.S. dollar. The company recently reported fiscal year 2023 second-quarter operating profits of $4.1 billion and earnings per share of 23 cents – below expectations of $5.2 billion and 35 cents.
Do Politics Matter for the Stock Market?
The market slipped rather than soared on the midterm election results, muted by a less-than-overwhelming GOP wave, uncertainty about the remaining results, and expected gridlock over the next two years.
This begs the question whether politics even matters for market returns.
The answer is yes, though not nearly as much as pundits and strategists would like you to think.
But the data is encouraging. For example, since 1950 when Harry Truman was president, the S&P 500 has gone up, regardless of the party in power. In addition, stocks tend to outperform when there’s a divided government.
According to LPL Financial, since 1950, the S&P 500 has outperformed (on a 52-week basis) whenever voters deal a power-sharing split of a Republican-controlled Congress and a Democratic president. Specifically, the S&P has climbed 17.5% in those years versus an overall average annual return of 12.3%.
After the dust settles, this may be where we end up.
Of course, past performance is no indicator for future gains or losses and there is a lot going on in our economy and the world that can impact markets. But a few things seem clear. One is that the market does not like uncertainty and politics is a key layer of uncertainty.
Another is that gridlock can stymie the out-of-control spending and debt we have been going through but it can also lead to standoffs and government shutdowns as we head to 2024.
Today we head to the agribusiness sector and a new investment idea showing relative strength in a down market. In this type of market, it makes sense to blend stocks of companies that are well off their highs but still posting profits with stocks that are performing well and demonstrating relative strength.
This company should grow no matter what the politicians do since we all must eat, though about 800 million still live in extreme poverty according to the World Bank.
The Global Food Security Index, developed by Economist Impact, measures the state of food security across 113 countries through 68 indicators and four key categories: affordability, availability, quality and safety. During the last few years, the food security index was down and this trend continues in 2022 as food prices increase and economic growth slows.
New Explorer Recommendation: Corteva (CTVA): Helping to Feed the World
According to the World Bank’s projections, the global middle class will rise from 400 million in 2000 to 1.2 billion by 2030, controlling over $6 trillion in spending power. Studies show that as incomes rise in emerging markets, diets change rapidly with less rice and vegetables and more meat and dairy. Agribusiness is a growth sweet spot at the bullseye of supply and demand for food.
Based in Indianapolis, Corteva uses emerging technology to help farmers improve crop yields, boost output and increase the consistency of production from year to year, no matter the weather. A spinoff from DowDuPont three years ago, the firm builds on DuPont’s Pioneer seed business and Dow’s crop chemical business. Many of Corteva’s products are based on entirely natural processes, but its seed business sells both conventional and genetically modified seeds that produce maximum agricultural output per acre.
Genetically modified seeds also offer better resistance to disease, drought, extreme heat and cold, insects and herbicides – and can be used to improve nutritional characteristics as well. Products such as herbicides, insecticides and nitrogen stabilizers also protect against weeds, pests and diseases.
You should be aware that modified seeds are controversial in some quarters and some grocery chains label food products that contain genetically modified organisms (GMOs). Still, nearly 80% of processed foods on U.S. grocery shelves – breakfast cereals, snack foods, soft drinks – contain genetically modified ingredients. According to the Environmental Working Group, the nation’s leading environmental health research group, the average American consumes 193 pounds of genetically engineered food each year. Yet, most Americans polled believed they had never eaten genetically modified foods.
Genetically modified seeds are necessary to feed the world as they allow farmers to produce better-quality crops while using fewer pesticides, herbicides and fertilizers. Therefore, on 20% less land, America now grows five times as much corn as they did in the 1930s. The yield per acre has grown more than six times in the past 75 years. So, when 8 billion people wake up every single day – they will hopefully have food to eat.
While the market is down sharply over the past year, Corteva is up more than 40%. Although the down market does lead to quality companies growing top-line revenue and net profits trading at bargain prices, a strong case can be made for stocks like Corteva that are recession-resistant and outperforming the market on a relative basis. Recently, Corteva reported a 12% increase in net sales and beat earnings expectations by about 50%. Earnings per share are projected to grow from $2.50 this year to perhaps $3.25 in 2023. BUY A HALF POSITION
|Stock||Price Bought||Date Bought||Price 11/09/22||Profit||Rating|
|Centrus Energy (LEU)||27||7/8/22||31||13%||Buy a Half|
|Corteva (CTVA)||—||NEW||—||–%||Buy a Half|
|Ford (F)||20||11/23/21||13||-34%||Buy a Half|
|Infinenon Technologies (IFNNY)||25||7/22/22||27||8%||Buy a Half|
|Kraken Robotics (KRKNF)||0.28||9/2/22||0||21%||Buy a Half|
|Marvell Technology, Inc. (MRVL)||41||10/27/22||37||-10%||Buy a Half|
|MP Materials (MP)||35||8/4/22||30||-14%||Hold a Half|
|Oracle Corporation (ORCL)||—||11/11/21||—||–%||Sold|
|Sociedad Química y Minera de Chile S.A. (SQM)||75||4/29/22||103||37%||Hold a Half|
|Toyota Motors (TM)||135||10/14/22||135||-1%||Buy a Half|
|WisdomTree Emerging Markets High Dividend Fund (DEM)||32||9/29/22||34||4%||Buy a Half|
Explorer Stocks in Brief
Centrus Energy (LEU): see above. It remains a buy for aggressive investors after falling 31% on Wednesday on a big earnings miss. BUY A HALF
Ford (F) is making a transition to a leader in both conventional and electric vehicles (EVs). Ford has a forward price-to-earnings ratio of just over 7 with a dividend yield of 4.4%. It continues to see rising demand for its electric vehicles and Ford stock will benefit from big $7,500 EV subsidies. Ford remains my favorite conservative stock despite a challenging market and supply chain issues BUY A HALF
Infineon Technologies (IFNNY) has an advantage on many other semiconductor stocks in that it is focused on auto and industrial markets where shortages and high demand persist, allowing it to raise prices. This stock seems undervalued to me, with a forward price-to-earnings ratio of 12 while the company’s earnings per share is expected to grow 38% this year and cash flow growth is strong. This is still a buy on dips in this market. BUY A HALF
Kraken Robotics (KRKNF) is probably the most speculative of Explorer stocks, but it is a well-run company and a prime takeover candidate in the growth defense sector coupled with a strong management team. Based in Newfoundland, Kraken Robotics is a marine technology company providing ultra-high resolution, software-centric sensors and underwater robotic systems. BUY A HALF
Marvell Technology Group (MRVL) designs, develops and sells a wide variety of semiconductor products that are at the core of 5G-capable networks, processors and devices as they partner with and transition to 5G. The company’s embedded processors and products are cutting-edge and already generate $3 billion in annual sales. Marvell has a long runway of growth as the company expects double-digit growth in both sales and net profit for 2022 and is also growing through acquisitions. Looking ahead, I expect earnings at Marvell could reach more than $3 next year. The company is one of the world’s fastest-growing chipmakers and I expect its share price to recover its momentum. BUY A HALF
MP Materials (MP) is an effective way to play clean tech, defense, semiconductors, and other advanced and emerging technologies. Based on its valuation, MP is moving closer to being rated a buy and is America’s only active rare earth mining and processing site, producing approximately 15% of the rare earth content consumed in the global market in 2021. HOLD A HALF
Sociedad Química y Minera de Chile S.A. (SQM) is a double play on growing demand for both lithium and fertilizer. SQM offers us a dividend yielding 7% and an impressive 12% five-year annualized dividend growth rate. I would keep a 20% trailing stop-loss in place as this stock and lithium prices have had a good run. SQM has a reasonable valuation based on earnings and an impressive 25% return on assets and 60% return on equity. I’m keeping this a hold and encouraging you to take some profits off the table based on your risk tolerance and time frame. HOLD A HALF
Toyota Motors’ (TM) hybrid EV sales jumped 73% last year according to research firm Motor Intelligence. Toyota pioneered hybrid cars in the late 1990s with the Prius, and hybrids, including plug-in cars, accounted for around 20% of Toyota’s U.S. sales in September.
Toyota remains the No. 1 hybrid seller in America, led by a gas-electric version of the RAV4 sport-utility vehicle, the nation’s top-selling hybrid. Toyota leader Akio Toyoda recently told reporters the company could make eight plug-in hybrids with the same number of batteries in a single 320-mile-range EV.
High-quality Toyota trades at less than 10 times forward earnings. BUY A HALF
Explorer ETF/Fund Update
WisdomTree Emerging Markets High Dividend Fund (DEM) offers both a high dividend yield and some of the highest quality emerging market stocks in the world with an average price-to-earnings ratio of around 5. This ETF gives broad exposure to large caps, mid-caps and small caps in these countries with an emphasis on income and value. The stocks in its basket tend to be conservative, defensive companies with low valuations and high dividends. BUY A HALF
The next Cabot Explorer issue will be published on November 24, 2022.
JUST PUBLISHED — New book from Chief Analyst Carl Delfeld