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The World’s Best Stocks

September 8, 2022

Markets continue to at best tread water. Yesterday, markets performed better as the Nasdaq Composite ended a seven-session streak of declines.

Kraken Robotics (KRKNF) shares were up 20% in their first week as an Explorer recommendation as the company signed a follow-on contract to supply additional KATFISH™ for the NATO Navy’s new mine hunting vessels.

China EV Automakers Take on Tesla

Markets continue to at best tread water. Yesterday, markets performed better as the Nasdaq Composite ended a seven-session streak of declines.

Kraken Robotics (KRKNF) shares were up 20% in their first week as an Explorer recommendation as the company signed a follow-on contract to supply additional KATFISH™ for the NATO Navy’s new mine hunting vessels.

Elsewhere, China just can’t seem to get rid of COVID as they lock down some big cities like Chengdu that has a population of more than 21 million people. About 70 cities in China are in a partial or full lockdown with food shortages driving panic buying. Yet, despite all of China’s current issues, from pollution to corruption, high debt, and high youth unemployment, you can’t underestimate its resiliency.

China is clearly at the center of the electric vehicle ecosystem even though Tesla got the jump and European adoption of EVs is higher than China’s. Even with new competition from other automakers, the Tesla Models 3 and Y still accounted for 60% of U.S. electric-vehicle sales this year through August, according to Motor Intelligence.

This is a far cry from its 6.6% share of China EV volumes worth $124 billion last year, according to Motor Intelligence. China’s market is highly fragmented and competitive.

We are still in the early innings of this revolution given that with a world population of nearly 8 billion, we have about 1.4 billion cars on the road and only 1.5% are either hybrid or electric. But many investors do not appreciate that building cars is incredibly capital-intensive and companies will burn lots of cash before they can manufacture their models at scale and turn a profit.

UBS expects China to sell 6.6 million electric cars in 2025, about 25% of all new cars, rising sharply to 18 million, or 60%, by 2030. “China’s EV market will still account for half of the world’s total with estimated sales of 6 million vehicles this year and 7.3 million units in 2023,” said UBS analyst Paul Gong. “The sector will be able to grow on a fast track even with the absence of government cash subsidies from next year.”

Incredibly, the Swiss bank said there is a chance that by 2040, all new cars around the world could be electric vehicles as costs need to continue to come down.

Tesla is the leader in the premium EV segment while NIO, Xpeng and Li Auto now vigorously compete against Tesla’s Model 3 and Model Y vehicles assembled at its Gigafactory 3 in Shanghai.

Portfolio Updates

Portfolio Changes: None

Centrus Energy (LEU) shares were steady this week after a very strong start and uptrend. Its order book is at around $1 billion, with multi-year contracts. Prices in the global uranium enrichment market have gained significantly so far in 2022, enabling Centrus to make long-term sales at higher prices and margins. In the first half of 2022 alone, LEU secured more than $135 million of new sales contracts and commitments. In its last quarter, net income of $37.4 million tripled year over year on revenue of $99.1 million in Q2 2022.

Based in Bethesda, Maryland, Centrus supplies nuclear fuel and services for the global nuclear power industry. Nuclear power provides 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 just over four times earnings. BUY A HALF

Cloudflare (NET) shares were down five points this week even though the company recently posted strong second-quarter earnings with its revenue rising 54% year over year. Cloudflare makes around 60% of its revenue from large customers spending at least $100,000 annually. Cloudflare gained a record 212 new large customers in the second quarter. I still believe this is a buy since it is still down 50% from its high. BUY A HALF

Fanuc (FANUY) shares were off marginally to 15.6 as this stock continues to tread water even though global sales of industrial robots grew 27% year-over-year to a record in 2021 after two years of declines, according to the International Federation of Robotics. Jefferies estimates China’s working population will decrease by 35 million by 2025 from 2020 levels, which could hasten the pace of robot adoption, looking at the experience of Japan.

Fanuc is the world’s leading manufacturer of industrial robots and FANUY offers us a high quality stock that should be firm with its strong balance sheet with plenty of cash. My six-month price target for this low-risk stock remains 25. BUY A HALF

Ford (F) shares were flat at 15 as August sales posted a gain of 27% year-over-year versus overall industry sales growth of 4.8%. EV sales have grown four-fold from over a year ago and the all-electric F-150 is the fastest turning vehicle in Ford’s lineup. The Detroit automaker sold 58,283 F-series pickups in August. Unfortunately, prices for the F-150 Lightning model will increase by as much as $8,500 for the 2023 model year.

For comparison, in July Ford’s U.S. sales climbed 37% and Ford had a 70% bounce in SUV sales while U.S. sales of trucks climbed about 20%. Ford stock still stands out for its value as it trades at just over five times trailing earnings. BUY A HALF

Freeport-McMoRan (FCX) shares were off one point this week as the stock struggles a bit as slower global growth impacts copper prices. However, its Lone Star project in eastern Arizona is on track to produce more than 200 million pounds of copper annually and the company is expanding underground production at its Grasberg mine in Indonesia. Freeport is managing finances well with a return on equity of 27%, return on assets of 12%, and an ample cash reserve of $9.5 billion.

The Phoenix-based global mining giant operates seven copper mines in North America, two in South America, and one of the world’s largest copper and gold mines in Indonesia (Grasberg). With a valuation of just under 9X earnings, I think we have upside potential but the current pullback makes me pause which is why I moved it to a Hold in last week’s issue. HOLD A HALF

Infineon Technologies (IFNNY) shares were steady at 24 this week. According to Zacks, the company’s EPS is expected to grow 38% this year, exceeding the industry average of 11.9%. Year-over-year cash flow growth is over 100% – higher than many of its peers. Infineon is a leading broad-based European chipmaker founded when the company was divided from its Siemens parent in 1999 and is focused on auto markets rather than consumer electronics. BUY A HALF

Kraken Robotics (KRKNF) share were up 20% in their first week as an Explorer recommendation as the company signed a follow-on contract to supply additional KATFISH™ for the NATO Navy’s new mine hunting vessels. Like many other NATO countries, Kraken’s clients are upgrading their capabilities, as the war in the Ukraine leads to higher demand. Kraken Robotics has also landed a major contract to provide new sonar systems for the Royal Danish Navy. The contract, worth $40 million, is the biggest to date for the company.

Based in Newfoundland with operations in Brazil, Boston, Germany, and Denmark, Kraken Robotics is a marine technology company providing ultra- high resolution, software-centric sensors and underwater robotic systems.

This marine technology company provides advanced sonar and laser systems and subsea power solutions for Unmanned Underwater Vehicles for military and commercial applications. This is certainly a speculative idea but the stock trades at just $0.30 per share and I believe Kraken is a well-run company in a strategic area of growth and therefore a prime takeover candidate by a larger maritime contractor. Consider a small position in this tiny but profitable company. BUY A HALF

MP Materials (MP) shares edged down another three points this week reflecting lower prices for some key rare earths. This is in sharp contrast to recently reported earnings per share surging 139% from the prior-year quarter’s levels and revenues reflecting a year-over-year jump of 96%. MP is a way to play clean tech, defense, semiconductors and other advanced and emerging technologies through some of their basic inputs. MP currently ships more than 90% of its products to China for processing. In April, MP Materials and General Motors inked a long-term supply agreement commencing in late 2023 for GM’s EV programs. BUY A HALF

Sociedad Química y Minera de Chile S.A. (SQM) shares were up 5% this week to finish at 105. SQM’s dividends are a major attraction with an annual yield of 10.6% at current prices with an impressive five-year annualized dividend growth rate of 12%. Investors and analysts may be concerned about comparisons going forward as SQM’s earnings for the second quarter were $3.01 per share, an increase of 857% over Q2 a year ago. SQM is a double play as the company is also the largest producer of potassium nitrate used for fertilizer so the stock offers two drivers of revenue and profits. HOLD A HALF

StockPrice BoughtDate BoughtPrice 9/8/22ProfitRating
Centrus Energy (LEU)277/8/225084%Buy a Half
Cloudflare (NET)506/24/226223%Buy a Half
Fanuc (FANUY)155/13/22164%Buy a Half
Ford (F)2011/23/2115-25%Buy a Half
Freeport-McMoRan (FCX)318/19/2229-4%Hold a Half
Infinenon Technologies (IFNNY)257/22/2224-4%Buy a Half
Kraken Robotics (KRKNF)0.289/2/2207%Buy a Half
MP Materials (MP)358/4/2232-10%Buy a Half
Sociedad Química y Minera de Chile S.A. (SQM)754/29/2211046%Hold a Half
Carl Delfeld is your guide to growth trends and bull markets around the world. His Cabot Explorer will show you the vast profit potential of investing in emerging economies as well as other world stock markets.