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December 8, 2022

Weekly Stock Roundup

Centrus Energy (LEU) shares retraced from 38 to 34 as three hedge funds were long Centrus in the third quarter, while six hedge funds were long the stock in the previous quarter. Their total stake values were $14.9 million and $14.7 million, respectively. This is still a buy for aggressive investors.

Corteva (CTVA) shares were off three points as the company agreed to buy biologicals firm Stoller Group for $1.2 billion to accelerate its expansion into the growing market for nature-based, crop protection products. Stoller Group has operations and sales in more than 60 countries and $400 million in forecast revenues from the deal.

Ford (F) currently has three EV models: the Ford Mustang Mach-E crossover/SUV, the F-150 Lightning pickup and the e-Transit van. Each is targeted at a distinct customer base and all three vehicles are in market segments with healthy profit margins. Ford wants to produce EVs at annual rates of 600,000 by late 2023 and more than 2 million by 2026.

Infineon Technologies (IFNNY) shares went from 34 to 33 this past week and are up about 35% over the past month after it reported fourth-quarter revenue growth of 38% and a gross profit margin of 46%.

Kraken Robotics (KRKNF) shares were up two points this week after being awarded a prime contract with the government of Canada to provide Remote Minehunting and Disposal Systems. The contract consists of an estimated 24-month acquisition program followed by an initial five-year Integrated Logistics Support (ILS) program. Formal contract signature and kickoff will occur in January 2023. If all options in the Acquisition and ILS programs are selected, the total value will exceed $50 million.

Marvell Technology Group (MRVL) shares disappointed this week, though the company reported

a new quarter with revenue of $1.54 billion up 27% year over year, with the company pointing to its cloud computing, 5G wireless network upgrade, and automotive sector products in leading growth. The market seemed disappointed with fiscal fourth-quarter guidance expecting sales to fall back to between $1.33 billion and $1.47 billion, with adjusted earnings of between $0.41 and $0.51 per share.

MP Materials (MP) shares have held their own over the last quarter, showing a loss of 2%. The company consistently beats expectations with its quarterly earnings and remains a buy.

Novo Nordisk (NVO) shares were steady this week as demand for its weight loss drug outstripped supply as management underestimated the ramp-up in sales. The market for anti-obesity drugs, now worth $2.4 billion worldwide, could reach $50 billion in 2030, Morgan Stanley estimates.

Toyota Motors (TM) shares gave back last week’s gains as the company announced it will launch six electric models in Europe by 2026 and start U.K. trials converting pick-up trucks to run on hydrogen. 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.

Market Brief

Not a great week for Explorer stocks with only Kraken posting a gain for the week as the S&P 500 suffered its fifth consecutive day of losses. Stronger-than-expected data indicated that interest rates may keep rising.

Xi Jinping bowed to pressure yesterday as Beijing announced a significant easing of its zero-Covid policies, hoping this action calms down public protests. Chinese exports fell sharply in November, the latest indication of how the country’s pandemic restrictions and waning global demand for goods are slowing China’s economy.

Taiwan Semiconductor (TSM) had a ceremony to highlight that it will build a second semiconductor factory in Arizona, projecting total costs of $40 billion.

The first plant, with a price tag of $12 billion, is expected to start mass production in 2024. President Biden and Apple CEO Tim Cook attended the ceremony. Apple alone accounted for about 25% of TSMC’s sales last year, according to Bernstein.

Europe is on the mend as the benchmark Euro Stoxx 50 index has gained 18% this quarter, putting it on track for the best quarterly performance since 2009.

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 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 POSITION

Corteva (CTVA) uses emerging technology to help farmers improve crop yields and boost output. 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 with 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%. BUY A HALF POSITION

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 4 with a dividend yield of 5%. 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 POSITION

Infineon Technologies (IFNNY) has an advantage over 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 price-to-earnings ratio of 12, and 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 the market. BUY A HALF POSITION

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 POSITION

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. Marvel 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 POSITION

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 POSITION

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 estimated the potential market for obesity-related ailments could be as many 1.2 billion 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 POSITION

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 just ten times earnings. BUY A HALF POSITION

Explorer ETF/Fund Positions

WisdomTree Emerging Markets High Dividend Fund (DEM) is up 16% during the last month and 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 to large caps, midcaps and small caps with an emphasis on income and value. BUY A HALF POSITION

StockPrice BoughtDate BoughtPrice 12/7/22ProfitRating
Centrus Energy (LEU)277/8/223426%Buy a Half
Corteva (CTVA)6611/11/2264-3%Buy a Half
Ford (F)2011/23/2113-35%Buy a Half
Infinenon Technologies (IFNY)257/22/223329%Buy a Half
Kraken Robotics (KRKNF)0.289/2/22057%Buy a Half
Marvell Technology, Inc. (MRVL)4110/27/2240-1%Buy a Half
MP Materials (MP)358/4/2232-9%Hold a Half
Novo Nordisk (NVO)12612/2/221260%Buy a Half
Sociedad Química y Minera de Chile S.A. (SQM)--4/29/22----%Sold
Toyota Motors (TM)13510/14/221425%Buy a Half
WisdomTree Emerging Markets High Dividend Fund (DEM)329/29/223613%Buy a Half
Carl Delfeld is a member of the Cabot investment team, and chief analyst of Cabot Explorer.