Commodities Send Mixed Signals
Stocks struggled back from early losses yesterday after blue chips posted their biggest two-day gains in more than two years.
Explorer stocks had a good week with most up nicely and Infineon (IFFNY) up about 18%.
Perhaps the best indicator of where the U.S. and global economy is going are commodity prices. For example, copper prices are gaining ground though they are still far from highs reached earlier this year.
Copper futures were up for a seventh consecutive trading day – the longest winning streak since February 2021. Yet, they’re still off about 30% from 2022 highs.
Brazil, a commodity heavyweight, combined stronger commodity prices and a stronger-than-expected showing in the polls for Brazil’s incumbent president, Jair Bolsonaro, ahead of their October 30 runoff election, helping power Brazilian markets yesterday. Brazil has Latin America’s largest economy and population.
Oil prices are also rising after and the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia, agreed to cut production. The S&P 500’s energy sector was up 2.5% yesterday on the news.
Portfolio Updates
Portfolio Changes: None
Centrus Energy (LEU) shares advanced from 40 to almost 43 this past week and are holding fairly firm in a weak market. This nuclear fuel supplier’s deployment-ready centrifuge enriches uranium for utilities in the U.S. and abroad. No other commodity features the incredible energy density of nuclear fuel. One uranium fuel pellet has the energy potential equivalent of 149 gallons of crude oil.
Centrus’ net income margins are above 50% for the year, and the company recently announced that it has secured new nuclear fuel sales contracts and commitments worth an estimated value of $270 million so far this year.
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. Centrus stock is still trading way off its 52-week high and at less than four times earnings. BUY A HALF
Fanuc (FANUY) shares had another uninspiring week, creeping back to 14.4 despite the robotics megatrend. Fanuc’s robot orders in the latest quarter rose 23% from the previous quarter, driven by strong demand everywhere and especially the U.S. Jefferies estimates that Fanuc is the world’s leading manufacturer of industrial robots and Fanuc stock offers us a high quality stock with a strong balance sheet with plenty of cash. This stock is testing our patience but holds its ground in weak markets. BUY A HALF
Ford (F) shares rebounded to 12.5 this week and I could not agree more with Morgan Stanley, which upgraded the stock to overweight. One indication of value is that its dividend yield at 4.9% is higher than its price-to-earnings ratio of just about 4X. Ford stock will benefit from recently approved $7,500 EV subsidies and is still a buy as it trades at less than five times trailing earnings. BUY A HALF
Infineon Technologies (IFNNY) shares were up about 18% this week to get to 25. Infineon has a forward price-to-earnings ratio of 11, compared with 16 for the semiconductor industry.
The company’s EPS is expected to grow 38% this year and cash flow growth is strong. Infineon is a leading broad-based European chipmaker founded when the company was divided from its Siemens parent in 1999. This is still a buy given its markets and sales and earnings momentum. BUY A HALF
Kraken Robotics (KRKNF) shares were up a bit to 0.30. The company recently signed a follow-on contract to supply additional KATFISH™ for the NATO Navy’s new mine hunting vessels. Kraken Robotics has also landed a major contract to provide new sonar systems for the Royal Danish Navy.
Based in Newfoundland, Kraken Robotics is a marine technology company providing ultra-high resolution, software-centric sensors and underwater robotic systems. Kraken is a well-run company in a strategic area of growth and a prime takeover candidate but please keep in mind that it is an aggressive play offset by strong management. BUY A HALF
MP Materials (MP) shares got back to 31 – a far cry from the 56 they traded for early April of this year. The stock is trading at just 20 times trailing earnings, which is about half of where this metric sat a year ago. This stock is a way to play clean tech, defense, semiconductors, and other advanced and emerging technologies through some of their basic inputs. Based on its valuation, MP is moving close to being rated a buy again. HOLD A HALF
Oracle (ORCL) shares jumped from 62 to 66 this week. The company reported solid results in its first fiscal quarter, as its cloud infrastructure revenue increased 58% year over year.
Oracle’s founder and chairman, Larry Ellison, noted that Oracle can save cloud users money and offer a better product than Amazon’s AWS: “We expect next quarter, we’ll be announcing some brands and companies moving off of Amazon.” One key plus for Oracle is that its cost structure is fairly fixed so each additional dollar of revenue earns more profit than the last. Despite all these strengths, Oracle’s shares still lack an uptrend and are therefore a hold. HOLD A HALF
Sociedad Química y Minera de Chile S.A. (SQM) shares finished the week at 93, down from 105 a month ago despite lithium prices staying quite high, unlike many other commodities. SQM offers us an intriguing package with dividends that are sizable, yielding 11.9% and an impressive 12% five-year annualized dividend growth rate, plus a price-to-earnings ratio of 13.
SQM is also the largest producer of potassium nitrate used for fertilizer so the stock offers two drivers of revenue and profits. We need to watch this stock closely and make sure you have a trailing stop-loss in place. HOLD A HALF
Taiwan Semiconductor (TSM) shares made a nice move from 70 to 74 this week as Morgan Stanley called it its top tech stock pick as the enabler of overall tech growth. A Needham analyst also recently stated that it expects TSM will grow top-line revenue 15% in 2023 despite an overall expected fall in industry sales. TSM trades at a very reasonable 15 times trailing earnings as the stock has come back to from a 52-week high of 145 way back in January.
While nobody right now can compete with the America’s software programmers, semiconductor designing, and equipment, most advanced chips come from Taiwan. BUY A HALF
Explorer ETF/Fund Update
WisdomTree Emerging Markets High Dividend Fund (DEM) went from 32 to 34 in its first week as an Explorer recommendation.
WisdomTree Emerging Markets High Dividend ETF covers 17 different emerging markets and gives broad exposure to large caps, mid-caps and small caps in these countries. Emerging markets make up about 80% of the countries in the world representing 77% of the world’s landmass and 85% of its population. These countries now represent roughly 60% of total global GDP while just two decades ago they accounted for only 23%.
This ETF has a clear income and value strategy. The stocks in its basket tend to be conservative, defensive companies with low valuations and high dividends.
And WisdomTree makes adjustments to the portfolio every year to make sure the companies in the ETF basket are in the top 35% of emerging market companies by dividend yield. Furthermore, this ETF holds some of the cheapest quality stocks in the world with an average price-to-earnings ratio of 5.5 (vs. 12 for the MSCI Emerging Markets Index and about 20 for the S&P 500). BUY A HALF
| Stock | Price Bought | Date Bought | Price 10/05/22 | Profit | Rating |
| Centrus Energy (LEU) | 27 | 7/8/22 | 43 | 57% | Buy a Half |
| Fanuc (FANUY) | 15 | 5/13/22 | 14 | -6% | Buy a Half |
| Ford (F) | 20 | 11/23/21 | 13 | -38% | Buy a Half |
| Infinenon Technologies (IFNNY) | 25 | 7/22/22 | 26 | 0% | Buy a Half |
| Kraken Robotics (KRKNF) | 0.28 | 9/2/22 | 0 | 7% | Buy a Half |
| MP Materials (MP) | 35 | 8/4/22 | 31 | -11% | Hold a Half |
| Oracle Corporation (ORCL) | 94 | 11/11/21 | 67 | -29% | Hold a Half |
| Sociedad Química y Minera de Chile S.A. (SQM) | 75 | 4/29/22 | 93 | 24% | Hold a Half |
| Taiwan Semiconductor (TSM) | 77 | 9/16/22 | 74 | -4% | Buy a Half |
| WisdomTree Emerging Markets High Dividend Fund (DEM) | -- | NEW | 34 | --% | Buy a Half |