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Explorer
The World’s Best Stocks

January 19, 2023

Bull Market in Nuclear Energy and Electric Vehicles (EVs)

Portfolio Changes: Toyota Motors (TM) – Move from Buy to Sell

A key theme of the Explorer is that there is always a bull market somewhere in the world. Today we offer a quick update on two – nuclear energy and electric vehicles.

All in all, the track record of nuclear energy is very good, especially when compared with the effects from comparable forms of energy.

To reach net zero by 2050, the International Energy Association (IEA) says nuclear energy capacity will need to double. Its model assumes an annual average of 30 gigawatts of new nuclear capacity coming online starting in the 2030s and staying on that track until 2050.

Nuclear energy produces abundant power with essentially zero greenhouse gases, like wind, solar, and hydroelectric. Moreover, it is a safe and proven technology that already provides over half of U.S. carbon-free energy generation.

According to the Oxford Institute for Energy Studies, the world would need to build 235 new reactors in the next eight years alone just to hit net zero by 2050.

Since 440 reactors now operate globally and 60 new ones are under construction, the world would therefore need to construct and have online the equivalent of 180 more 1,000-megawatt reactors.

From the 1960s through the early 21st century, U.S. firms were the largest exporters of nuclear technologies worldwide, but over the last decade, developing countries have looked more to Russia and China for help building new nuclear energy projects.

The latest generation of nuclear reactors being designed in the United States are smaller – a quarter of the size of reactors currently being marketed by Russia and China. This makes them easier to construct and finance and, in addition, safer.

China may have weak demographics, low levels of education, stalled reforms, rising debt, and slower economic growth, but electric vehicles (EVs) are a bull market in China as the country becomes a clear leader of the world’s EV ecosystem.

Bloomberg reported global EV sales for 2022 this week as overall global auto sales declined to 81 million, but EV sales jumped 68% and now account for 10% of all auto sales.

China accounts for an amazing 66% of total world EV sales as 25% of China auto sales last year were EVs. About 11% of Europe’s auto sales were EVs and for Germany, the proportion was 25%. America’s EV sales last year surged 40% but they represented only 6% of total new U.S. auto sales in 2022.

Tesla (TSLA) is still the global EV leader followed by two Chinese automakers and then Volkswagen.

Weekly Explorer Stock News

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 and will be followed by a new recommendation every other week.

Explorer recommendations outperformed this week with most having an up week.

Butterfly Network (BFLY) shares were steady again this week on no news. Take advantage of this by buying shares if you have not already done so. Buy a Half.

Centrus Energy (LEU) shares followed last week’s 13% gain by giving up a point this week. As I note above, interest in nuclear stocks continues to be strong and Centrus stock trades at low multiples to future earnings. Buy a Half.

Corteva (CTVA) shares lost a point this week. The company will report earnings on February 1. This high-quality stock is expensive but still rated Buy a Half.

Ford (F) shares were flat this week as the market reacted to Tesla’s price cuts. Tesla is clearly growing the top line much faster than Ford, but Ford has consistently had much larger operating income and cash flow relative to Tesla. While Tesla stock is way off its high, shares still trade at a price-to-earnings ratio more than six times that of Ford. This is an interesting matchup. Buy a Half.

Kraken Robotics (KRKNF) shares were up from 0.45 to 0.48 this week as the company revealed that non-audited preliminary results show that the company has met the $40 million revenue guidance for 2022. This stock has more than doubled over the past six months. Aggressive - Buy a Half.

MP Materials (MP) shares followed last week’s 16% jump by gaining a point this past week. Rare earth stocks overall are starting this year on a positive note as China again warns major buyer Japan regarding its planned defense buildup. Hold a Half.

Novo Nordisk (NVO) shares gained eight points this week to reach 140 as the company announced a share repurchase program. Morgan Stanley projects the potential market for obesity drugs will reach $50 billion by 2030 – more than 20 times greater than it is today. Hold a Half.

Novonix (NVX) was up 12% this past week. A new recommendation, it is an Australian technology and advanced materials supplier to the electric vehicle and storage battery industry. Buy a Half.

Rolls-Royce PLC (RYCEY) shares were up nicely again this past week as insiders increased their holdings in 2022. This aerospace company recently announced successful test of an aircraft engine that runs on hydrogen. Aggressive - Buy a Half

Toyota Motors (TM) is a fine, high-quality core holding but I have decided to replace this with a new EV maker that offers mor upside and growth potential as EV sales continue to move ahead. Move from Buy to Sell.

Explorer Stocks Summary

Brief company overviews that will not change week to week.

Butterfly Network (BFLY) Butterfly’s breakthrough software can be tied into a medical network to provide instantaneous images and improve both the speed and quality of healthcare. This is so much better than scheduling a test in a week and then having the patient come back and must pay for another appointment.

However, if your doctor has the Butterfly iQ+ in their pocket, he (or she) just connects it to an iPhone, it scans your body and has a digital image right in front of him.

Plus, while an MRI machine can cost more than a million bucks, the Butterfly iQ+ costs a little over $2,000. Since it also requires a subscription service, it’s a steady source of recurring revenue for the company. The top 100 hospitals in the country already use Butterfly iQ devices. BUY A HALF

Centrus Energy (LEU) is a nuclear fuel supplier for utilities in U.S. and abroad has net income margins 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. Stocks like Corteva are recession-resistant and outperforming the market on a relative basis. BUY A HALF

Ford (F) is making the transition to a leader in both conventional and electric vehicles (EVs). It continues to see rising demand for its electric vehicles and Ford stock will benefit from the big $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 cars by late 2023 and more than 2 million by 2026. 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

MP Materials (MP) is an effective way to play clean tech, defense, semiconductors, and other advanced and emerging technologies. It 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 people are currently living with obesity and that this is up a multiple of 3X since 1975. In summary, based on sizable and growing demand for this weight-loss drug, this well managed, highly profitable company with an excellent growth profile and potential to develop new products has limited risk. BUY A HALF

Novonix (NVX)
Novonix is an Australian technology and advanced materials supplier to the electric vehicle and storage battery industry. Founded by members of a research team at Canada’s Dalhousie University, the company is a supplier of high-performance materials, equipment, and services for the global lithium-ion battery industry with a focus on North America.

Novonix is an unusual blend of both exploring and mining graphite and developing synthetic graphite, a key lithium-ion battery material. The focus is on electric vehicles, which are projected to go from global sales of 3.1 million in 2020 to 15 million in 2025 and then on to about 40 million in 2030. BUY A HALF

Rolls-Royce PLC (RYCEY)
Now Rolls-Royce 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. 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 the company derives much of its revenue. The result is the company has taken on quite a bit of debt. However, downside risk is offset by how important the company is to the U.K. government because of its strategically important aerospace and defense business. An aggressive idea. BUY A HALF

Toyota Motors (TM) is a fine, high-quality core holding but I have decided to replace this with a new EV maker that offers mor upside and growth potential as EV sales continue to move ahead. MOVE FROM BUY TO SELL

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. This ETF gives broad exposure with an emphasis on income and value. BUY A HALF

StockPrice BoughtDate Bought1/18/23ProfitRating
Butterfly Network (BFLY)212/30/2236%Buy a Half
Centrus Energy (LEU)277/8/223527%Buy a Half
Corteva (CTVA)6611/11/2262-7%Buy a Half
Ford (F)2011/23/2112-39%Buy a Half
Kraken Robotics (KRKNF)0.289/2/22071%Buy a Half
MP Materials (MP)358/4/2229-16%Hold a Half
Novo Nordisk (NVO)12612/2/2214011%Buy a Half
Novonix (NVX)51/12/2355%Buy a Half
Rolls-Royce PLC (RYCEY)112/9/22116%Buy a Half
Toyota Motors (TM)13510/14/221468%Sell
WisdomTree Emerging Markets High Dividend Fund (DEM)329/29/223818%Buy a Half
Carl Delfeld is a member of the Cabot investment team, and chief analyst of Cabot Explorer.