Portfolio Changes:
None
Real Asset Stock Plays
The markets continue to be challenging to say the least, with the S&P 500 off 18% so far this year, but like everyone I see some amazing companies posting strong numbers being pulled down over a blend of macro issues. These range from inflation and interest rates to the slowdown in China and conflict in Ukraine. Current Explorer recommendations still managed to outperform the market, with some up and most holding their ground in the past week. SQM (SQM) of Chile reported first-quarter profits up 10X over 2021.
No question, there are a number of past Explorer recommendations that I’m watching closely as they are quality companies with strong fundamentals. These include Marvell (MRVL), Cloudflare (NET), and Nio (NIO).
Stick to your plan and based on your age and risk tolerance, adjust your stop-losses to limit losses. This is challenging when the overall market is weak and stocks are pulling back regardless of their financial performance. Keep in mind that if you’re down 50%, you need the stock to double just to break even.
One area of strength I do see in today’s market is in some commodities, especially rare earths and rare metals, which are key to clean energy and technologies. Demand for rare earths for wind power alone is expected to triple by 2040, according to the International Energy Agency (IEA). About half of new mineral demand growth from clean energy technologies over the next two decades is expected to come from electric vehicles and battery storage.
According to data from the U.S. Geological Survey, global production of these minerals is relatively small – 170,000 tons of cobalt was mined in 2021, for example, compared to 21 million tons of copper
The IEA estimates that by 2040, 40% of total demand for copper and rare earths will come from clean energy technologies. In smaller markets, up to 70% of nickel and cobalt demand, and almost 90% of lithium demand, is expected to come from clean energy.
China processes roughly two-thirds of all cobalt, nickel and lithium, and all of the world’s graphite.
China also dominates downstream production of the goods into which those minerals end up. In 2021, six out of the 10 largest wind turbine producers were Chinese, as were eight of the top 10 solar panel manufacturers. And China accounted for over 75% of lithium-ion battery manufacturing capacity in 2020.
Portfolio Updates
CVS Health Corporation (CVS) shares dipped from 97.7 to 94 this week, far better than the retail sector as a whole. CVS recently reported first-quarter sales were up 11% and the company raised its 2022 earnings outlook slightly, now expecting over $8 a share. CVS is one of the nation’s leading healthcare companies with almost 10,000 stores, and is expanding its digital footprint. Nearly 70% of Americans live within three miles of a CVS and it has more than 102 million pharmacy plan members. CVS stock remains a conservative buy as it sells for less than 12 times forward earnings. BUY A HALF
Fanuc (FANUY) shares were flat this week, demonstrating some relative strength in its first week as an Explorer recommendation.
Fanuc is the world’s leading manufacturer of computerized numerical control (CNC) devices that are used in machine tools and also serve as the “brains” of industrial robots. Fanuc claims to be the only company that uses robots to make robots. The company does most of its manufacturing in Japan. Fanuc is building a new factory near Tokyo to double its domestic output capacity of machine tools to produce parts of smartphones. CSLA estimates Fanuc’s U.S. market share at 50% and in China about 20%. Exports account for 90% of Fanuc’s sales.
Fanuc’s stock offers investors a pristine balance sheet with zero debt and a whopping $7 billion in cash. Profit margins are impressive and Fanuc also bought back 72 million shares last month. In short, Fanuc is a high-quality play on what seems to be an unstoppable trend. Down 39% from its 52-week high, and currently trading at 15 per share, my six-month target for this high-quality conservative stock is 25. BUY A HALF
Ford (F) shares were up from 12.3 to 12.8 this past week and this stock remains my favorite pick in the current environment. My primary reason is that production is underway of the F-150 Lightening electric pickup truck at the Rouge Electric Vehicle Center and I expect this product will hit the market with great success. Trading at about four times trailing earnings, this is perhaps the best value of the leading EV makers so I encourage you to buy if you have not already done so. BUY A FULL
Novonix (NVNXF, NVX) shares were up this week from 2.4 to 2.6.
We have already taken some profits off the table on this Australian company, which plays a key role as a strategic provider of U.S. synthetic graphite that is both higher quality and lower priced than Chinese graphite. China has a lock on the production of natural graphite that is a critical electric vehicle battery component. The Novonix story rests on its patented-innovative technology and the company benefits from a strong partner in Phillips 66.
This is an aggressive idea and the company is at least a year away from reaching breakeven in terms of profitability. Novonix remains a buy recommendation for aggressive investors. BUY A HALF
Oracle Corporation (ORCL) shares were off two points this week, falling from 70 to 68. This quality, conservative software company is doing considerably better than most software-related stocks, yet is down 12% over the last month.
The company recently announced that its Oracle Cloud Infrastructure (OCI) product gained U.S. Department of Defense approval, which should lead to more government contracts. In addition, Oracle’s newly released Java 18 is being well received by the market as it delivers better performance, stability, and security that will further improve developer productivity. BUY A HALF
Sea Limited (SE) shares rallied this week from 57 to 74 as the company reported solid sales growth though gaming revenue is expected to only steady for 2022 and the company continues to post large losses.
First-quarter revenue from Shopee, Sea’s e-commerce wing, rose 64% to $1.5 billion. Revenue from gaming arm Garena gained 45%. Meanwhile, revenue from SeaMoney, Sea’s digital financial services unit, more than quadrupled to $236 million. Sea’s loss in the first three months widened to $580 MM and total revenue climbed 64% to $2.9 billion. A Goldman Sachs analyst recently picked up the company with a 196 target, almost triple the current price. SeaMoney revenue is expected to increase 155% in 2022. I will keep this a buy for aggressive investors. BUY A HALF
Sociedad Química y Minera de Chile S.A. (SQM) shares were up this week and have zoomed from 74 to 90 since being added as an Explorer recommendation three weeks ago. This morning SQM reported net income for the three months ended March 31, 2022 of US$796.1 million, compared to US$68.0 million in the same period of 2021. That’s more than a 10X comparison.
Lithium demand is expected to outstrip supply by 40X by 2040 and SQM’s lithium output is almost 20% of global lithium output. Lithium demand, sales, and prices have been going in the right direction and Russia’s fertilizer exports, which normally account for about 25% of world exports, are down sharply.
SQM is also the world leader with a 46% market share of potassium nitrate for plant nutrition. In 2021, revenue was up 57.5% and net profits tripled over 2020 as global lithium demand exploded 55% in 2021 primarily due to it being a key ingredient for lithium-ion batteries for electric vehicles. For SQM specifically, the current consensus growth estimate for this year calls for earnings-per-share growth of 204% with the long-term growth estimated to be around 40%. BUY A HALF
| Stock | Price Bought | Date Bought | Price 5/18/22 | Profit | Rating |
| CVS Health Corporation (CVS) | 104 | 4/18/21 | 94 | -9% | Buy a Half |
| Fanuc (FANUY) | 15 | 5/13/22 | 15 | 0% | Buy a Half |
| Fisker (FSR) | -- | -- | -- | -- | Sold |
| Ford (F) | 20 | 11/23/21 | 13 | -37% | Buy a Full |
| Novonix (NVNXF) | 2.24 | 8/6/21 | 3 | 18% | Buy a Half |
| Oracle Corporation (ORCL) | 94 | 11/11/21 | 68 | -27% | Buy a Half |
| Sea Limited (SE) | 15 | 2/8/19 | 74 | 399% | Buy a Half |
| Sociedad Química y Minera de Chile S.A. (SQM) | 75 | 4/29/22 | 90 | 20% | Buy a Half |
| StoneCo Ltd. (STNE) | -- | -- | -- | -- | Sold |