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The World’s Best Stocks

December 22, 2022

Weekly Stock Roundup

Portfolio Changes: Infineon Technologies (IFNNY): FROM BUY A HALF TO HOLD

Centrus Energy (LEU) shares were up a point this week but the Zacks Consensus Estimate for its current-year earnings has been revised 21% downward over the last 60 days. This is still a buy for aggressive investors as interest in expanding nuclear power gains momentum.

Corteva (CTVA) shares were steady this week as the company announced it will cut some U.S. jobs next year as it exits from Russia. This is aside from any changes due to its agreement to buy biologicals firm Stoller Group with operations in 60 countries for $1.2 billion.

Ford (F) shares were off 12% as higher lithium and other clean tech metals prices impact its costs and margins, forcing the company to raise prices. Ford said last Friday that it’s planning another $4,000 bump for the F-150 Lightning Pro, bringing it to $55,974 – 40% higher than where it was at its May 2021 launch. Lithium prices have jumped 149% in 2022, per Benchmark Mineral Intelligence

Infineon Technologies (IFNNY) shares gave up a point this week and have stalled a bit, prompting me to change the rating to a hold.

Kraken Robotics (KRKNF) shares pulled back a couple of points to 42 despite booking close to a million-dollar undersea service sale. Investor’s Business Daily recently highlighted the stock as its top robotics stock.

MP Materials (MP) shares are now trading at almost exactly 50% of their April 1 share price of 56. MP Materials is America’s only rare earths mine and of great strategic value, producing critical materials used to make the magnets in America’s most advanced commercial and military technology, from electric vehicles to Virginia-class attack submarines.

Novo Nordisk (NVO) shares were up again this week as the company announced a share purchase program. Novo underestimated demand and had since increased capacity, which should enable it to fulfill all its orders in 2023.

Rolls-Royce PLC (RYCEY) shares were unchanged in their first week as an Explorer recommendation.

It is primarily an aerospace and power play but it has long been at the vanguard of Britain’s nuclear industry.

Toyota Motors (TM) shares inched up this week as the market awaits its new, more powerful and sportier Prius 2023 to hit the market. Toyota, the world’s largest auto maker, under Akio Toyoda believes the best strategy is to develop a diverse offering of vehicles that includes electric vehicles, hydrogen-powered cars and hybrids.

Market Brief

Political Bull

Explorer positions were quiet this week as we head into the holidays. Perhaps 2023 will bring some good news no matter what your political persuasion.

Since 1939, there has been only one down year for the Dow Jones Industrial Average in the third year of a presidential term. The pattern has been the same with the S&P 500 since 1928.

Usually, a bear market occurs in the first or second year of each term, and a bull market resumes right around midterms, delivering strong gains from the elections through the end of the following year.

The third year of presidential terms has been the best by far, with a 10.4% average gain in the Dow Jones Industrial Average.

Small caps may be the best place to be since they are trading at a roughly 40% discount to large caps, according to Yardeni Research. The S&P 500 (large-cap) price-to-earnings (P/E) ratio is currently above 17, while the S&P 600 (small-cap) P/E ratio is closer to 12.

Then there’s the “January effect.”

From 1980 through 2021, the Russell 2000 index of small stocks averaged a gain of 18.2% in January (on an annualized basis) compared with a 12.7% gain for large caps, as measured by the Russell 1000.

I hope you all enjoy the holidays despite a less-than-inspiring market.

Let’s bank these good tidings as we all look forward to a better market next year.

Explorer Stocks in Brief

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. This nuclear fuel supplier for utilities in the U.S. and abroad has net income margins that are above 50% so far this year with new nuclear fuel sales contracts and commitments worth an estimated value of $270 million. Nuclear power provides 20% of the power for our electricity grid and more than 50% of U.S. emission-free energy, according to the Department of Energy. BUY A HALF

Corteva (CTVA) uses emerging technology to help farmers improve crop yields and boost output. While the market is down sharply over the past year, CTVA is up more than 25%. Although the down market does lead to quality companies growing 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%. 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 6 with a dividend yield of 5%. It continues to see rising demand for its electric vehicles and Ford stock will benefit from the $7,500 EV subsidies. Ford remains my favorite conservative stock despite a challenging market and supply chain issues. Ford wants to produce EVs at annual rates of 600,000 by late 2023 and more than 2 million by 2026. 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 persists, allowing it to raise prices. This stock seems undervalued to me, with a forward price-to-earnings ratio of 13, and the company’s earnings per share is expected to grow 12% this year (FY ’23) and cash flow growth is strong. But shares have fallen 8.7% in the last nine days, so I’m going to downgrade IFNNY to hold until it can regain momentum. MOVE FROM BUY A HALF TO HOLD

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

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

Novo Nordisk (NVO) specializes in treatments for diabetes, hemophilia, and obesity. The company supplies half of the world’s insulin, and its diabetes care products are used by over 34 million people today. Novo highlights that more than 750 million are currently living with obesity and that this is up a multiple of 3X since 1975. By 2025, it’s estimated the potential market for obesity-related ailments will be the equivalent of 1.2 trillion people.

Novo’s total sales already exceed $167 billion a year and for the quarter ending in September, earnings were up 19% on a 28% increase in revenue. Novo is also executing a $3 billion share repurchase plan. In summary, based on its sizable and growing demand for this weight-loss drug, this is a well-managed, highly profitable company with an excellent growth profile with limited risk and potential to develop new products. Its stock is outperforming the market, indicating relative strength. BUY A HALF

Rolls-Royce PLC (RYCEY)
The Rolls-Royce of today operates as an industrial technology company in the United Kingdom and internationally. The company operates in four segments: Civil Aerospace, Power Systems, Defense, and New Markets. The Civil Aerospace segment develops, manufactures, and sells aero engines for large commercial aircraft, regional jet, and business aviation markets, as well as provides aftermarket services. Rolls-Royce stock has been hard hit by the impact of Covid on air travel and thus the miles flown by Rolls-powered commercial jets, which is how it derives much of its revenue. The result is the company has taken on quite a bit of debt. However, the tide seems to be turning and downside risk is offset by how important the company is to the U.K. and U.K. government because of its strategically important aerospace and defense business.

Keep in mind that trading at a bit over $1 a share, Rolls-Royce is an aggressive idea. BUY 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 projects that about half of its spending from 2022 through 2030 will be focused on electric vehicles, including a new $3.8 billion battery plant in North Carolina opening in 2025. The new Prius will join eight other hybrid models, plus the all-new Toyota Crown, and two plug-in hybrid models. BUY A HALF

Explorer ETF/Fund Positions

WisdomTree Emerging Markets High Dividend Fund (DEM) offers 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 with an emphasis on income and value. BUY A HALF

StockPrice BoughtDate BoughtPrice 12/22/22ProfitRating
Centrus Energy (LEU)277/8/223322%Buy a Half
Corteva (CTVA)6611/11/2259-10%Buy a Half
Ford (F)2011/23/2112-42%Buy a Half
Infinenon Technologies (IFNY)257/22/223124%Hold
Kraken Robotics (KRKNF)0.289/2/22050%Buy a Half
Marvell Technology, Inc. (MRVL)4110/27/2239-5%Sell
MP Materials (MP)358/4/2229-18%Hold a Half
Novo Nordisk (NVO)12612/2/221325%Buy a Half
Rolls-Royce PLC (RYCEY)112/9/221-4%Buy a Half
Toyota Motors (TM)13510/14/221372%Buy a Half
WisdomTree Emerging Markets High Dividend Fund (DEM)329/29/223612%Buy a Half
Carl Delfeld is a member of the Cabot investment team, and chief analyst of Cabot Explorer.