November 17, 2022

Weekly Stock Roundup

Portfolio Changes: None

Centrus Energy (LEU) shares recovered five points this week to reach 35 as the Department of Energy announced that it and Centrus Energy’s American Centrifuge Operating, LLC will share the $150 million cost 50-50 to demonstrate production of a fuel called high assay low enriched uranium. This is still a buy for aggressive investors.

Corteva (CTVA) shares were off two points to 65 in their first week as Explorer stock. Corteva has delivered $175 million in productivity savings so far in 2022 as it seeks significant profit margin expansion by 2025.

Ford (F) shares were unchanged this week as CEO Jim Farley commented that manufacturing electric vehicles will require 40% fewer workers than building combustion engine cars and trucks.

Infineon Technologies (IFNNY) shares were up more than 13% this week after last week’s 16% move. Infineon said on Monday it was planning a new 5 billion-euro factory in the eastern German city of Dresden.

Kraken Robotics (KRKNF) was steady this week as the company stated that the next earnings report is slated for the week of November 28.

Marvell Technology Group (MRVL) shares added two points this week and the stock has moved beyond its 50-day moving average line.

MP Materials (MP) shares were up 6% this week and I have a conference call with MP management scheduled for next Monday.

Sociedad Química y Minera de Chile S.A. (SQM) shares slipped to 100 as the company reported third-quarter earnings yesterday evening. Revenues totaled US$2,958.3 million, an increase of approximately 347% compared to the third quarter of 2021, when revenues amounted to US$661.6 million. Net income was $1,099.9 million (US$3.85 per ADR) compared to US$106.1 million (US$0.37 per ADR).

Toyota Motors (TM) shares gained four points this week as the company unveiled the Prius Prime.

“In many ways, it’s an EV with an engine,” said Toyota’s design chief. Prius Prime will also get a boost in its battery range, with the new version offering 50% more in travel distance on a single charge. Toyota projects that about half of its spending from 2022 through 2030 will be focused on battery electric vehicles, including plans to build a new $3.8 billion battery plant in North Carolina opening in 2025.

Market Brief

Cash and Profits are King

There is one clear trend and that is investors looking for profits rather than just impressive top-line revenue growth.

One year ago yesterday, Rivian (RIVN) finished the day with a market value of $155 billion a few days after its initial public offering. Now, after a year of production and supply-chain challenges, its valuation is hovering just under $30 billion. Fortunately, the company ended up raising almost $12 billion, which means it can burn through more than $1.5 billion a quarter to boost production. Sea (SE) is another company that is trying to get to profitability rather than just spending money to gain market share.

Cash and capital are seen as a key asset rather than a drag on profitability.

In another development, several major car companies plan to deploy lithium iron phosphate batteries, known as LFP, a type commonly used in China. Those iron-based battery cells cost less than the nickel-and-cobalt combination used widely in North America and Europe. This is a big deal. Rivian is moving to LFP battery cells for some trucks and SUVs after supply-chain issues slowed production earlier this year, and cobalt and nickel prices surged.

President Biden’s first face-to-face talks at the G20 summit in Indonesia with Chinese President Xi as president followed months of increasing tension between the world’s two biggest rival economies. The U.S. has attempted to deter China with tech export bans and by highlighting that Beijing was a threat to American security. China, meanwhile, has accused Washington of trying to interfere in its internal affairs.

After the Biden-Xi talks, the countries said they would begin to talk more and rattle sabers less. The G20 summit in Bali was always going to be dominated by Russia’s war in Ukraine and the fear of a global recession but the meeting between President Biden and his Chinese counterpart has offered a ray of hope, even though deep divisions remain.

Both China and America are working to create jobs and economic growth at home by keeping more production within their regional blocs. Demographic trends are a key factor for all countries. China’s working age population is already shrinking and by 2030, America and China will have about the same median age. According to U.S. statistics, the world’s median age is 30.2 years old, compared to 20.6 in 1974. Japan’s median age is 49 and for Nigeria it is only 17. Sixty percent of the world’s population lives in countries that are at or below the fertility rate – which is the number of births to maintain a population.

Electric vehicles are a good example of the growing-at-home trend. Tesla and Panasonic have worked together since 2014 to build batteries at the electric carmaker’s first Gigafactory in Nevada. Ford and General Motors have partnered with battery makers SK Innovation and LG Chem, respectively, to build factories in the U.S. to supply batteries for their expanding EV offerings.

A shift in corporate strategy towards more vertical integration at Ford would hark back to the company’s early days when founder Henry Ford owned forests and iron mines, and even a rubber plantation in Brazil to wholly control the company’s supply chain.

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, Corteva is up more than 40%. Although the down market has caused many quality companies that are growing revenue and net profits to trade 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

Ford (F) is making a transition to a leader in both conventional and electric vehicles. Ford has a forward price-to-earnings ratio of just over 7 with a dividend yield of 4.2%. 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. 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 price-to-earnings ratio of 14 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

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 that has 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 7.4% 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 Positions

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