Updating the Buy List update from the recent issue
27th March 2023 |
We’ve just realised that a few of the company updates written for the Buy List update in last week’s Frontier Tech Investor didn’t make it into the issue itself, so here they are now.
We’ve also added them to the issue on the website, which you can see here.
Sorry about that.
Speak soon,
James Allen
Co-editor, Frontier Tech Investor
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Central Asia Metals (AIM: CAML)
Copper producer Central Asia Metals (AIM: CAML), recommended at 276p in January’s issue of Frontier Tech Investor, rose to 292p in early February but has since fallen below 260p.
CAML produces low-cost copper from Kounrad project in central Kazakhstan, but also owns a lead-and-zinc-producing asset in North Macedonia. It has an impressive record of production, beating output estimates again in 2022 at Kounrad after another record year.
The stock is mainly a play on expected tightness in the copper market, where a supply shortage is likely to emerge in a few years leading to a rise in copper prices. Copper is a key component in electricity-related technologies and, by extension, a linchpin in energy transition projects.
Although copper prices witnessed a rally at the beginning of the year, prices have subsequently lost a little steam amid worries over tepid demand in China, one of the world’s biggest copper consumers. Overall, the Copper Monthly Metals Index (MMI) fell 4.33% from February to March.
However, with the company offering an 8.5% dividend, we can certainly afford to be patient. The stock remains a BUY under 310p.
Fortescue Metals Group Limited (ASX: FMG)
Australian iron ore giant and green hydrogen hopeful Fortescue Metals Group Limited (ASX: FMG) rose to over AU$23 in late February though was last seen at just above AU$20, putting it around 17% up in the model portfolio.
The stock has felt pressure from some weakness in commodity prices, though investment bank Goldman Sachs recently upped its prediction for iron ore prices for 2023 from $100 per tonne to $120 per tonne. The three-month expectation is $150 per tonne.
In Fortescue’s core mining business, its Iron Bridge magnetite project in the Pilbara region of Western Australia is nearly complete, requiring fewer employees to oversee the work, resulting in the company laying off more than 100 workers.
The layoffs come at a time when a lot of major global miners – not just Fortescue – have reported lower profits as unprecedented lockdowns in China previously pressured iron ore prices.
Of course, one of the core reasons of our investment was Fortescue’s decarbonisation plans, which include the production of green hydrogen, green ammonia and high-performance batteries.
The business is working on a global portfolio of potential green energy projects, pursuing possible locations in Canada, the US, New Zealand, Australia, Europe, Egypt, the Kingdom of Jordan, Brazil and more.
The US is a particularly attractive market. Fortescue boss Andrew Forrest recently pointed to the huge opportunities available to the company in the US thanks to the US Inflation Reduction Act (IRA), which has introduced substantial tax incentives for a variety of low-carbon emissions projects.
The company is due to make a decision this year on five green hydrogen projects that it will develop and one of those is likely to be in Texas, according to Fortescue Future Industries CEO Mark Hutchinson.
Fortescue has also commissioned its first two big battery storage installations at its Pilbara iron ore mines, and begun construction on its first big solar farm.
The stock remains a BUY up to AU$25.
Rize Sustainable Future of Food UCITS ETF (LON: FOGB)
The Rize Sustainable Future of Food UCITS ETF (LON: FOGB) has fallen further below our 378.48p entry price, trading at the time of writing at around 345p.
The ETF currently has 51 holdings involved in the production of sustainable food and packaging, with plant-based foods, precision farming and fertiliser manufacturers among the targeted sub-sectors.
The plant-based food market is back on the up after a torrid 2022. For example, the share price of Beyond Meat – a core holding in the ETF – has now gained 37% so far this year, with the company recently posting fourth-quarter results and a financial forecast that analysts considered a positive surprise.
Similarly, last week Oatly – another holding in the ETF – announced better-than-expected annual figures, promises of a future profit and $425 million of new financing. CEO Toni Petersson said the group was now “well-positioned to start playing offence in 2023”. Its shares surged as a result.
The outlook for new food products and systems remains positive and, as such, the ETF remains a BUY.
Foresight Sustainable Forestry Company (LON: FSF)
Foresight Sustainable Forestry Company (LON: FSF), which invests in UK forestry and afforestation assets, continues to trade around 105-106p, putting it around 3% under water in the model portfolio.
The trust hasn’t released any news over the last month, though we’re confident that the long-term investment fundamentals of forestry should ensure both the trust and the wider asset class shines in 2023.
As global decarbonisation gather speed, people are waking up to the part sustainable land management and forestry must play in achieving net zero. This doesn’t just encompass growing trees to produce sustainable construction materials and other traditional timber-based products, but also the sequestration of carbon, the ability of forests to deliver enhanced biodiversity and the development of rural communities and amenities.
As a result, we expect to see ever-increasing demand and requirement for more afforestation and a rapidly expanding universe of investors looking to support and benefit from this process.
Although we can’t ignore prevailing economic headwinds – which include a recessionary economic environment, high inflation and a rising cost of capital – we expect the long-term qualities of forestry investment to continue to shine.
Global X Lithium & Battery Tech UCITS ETF (LON: LITG)
Global X Lithium & Battery Tech UCITS ETF (LON: LITG) has fallen from over $10 at the start of February to $8.75 at the time of writing, just above our £8.59 entry price.
LIT holds companies such as Tesla TSLA and Albemarle ALB, which are involved in the global mining and exploration of lithium, or in lithium battery production.
Lithium prices have recently fallen back after Chinese battery giant CATL offered rare discounts offered to automakers, but to us this is a blip – the long-term trend is still extremely favourable and we would expect lithium prices to resume their uptrend soon enough.
Lithium supply and demand determines price: EV demand is real, while new supply is slow to emerge.
Of course, the Global X Lithium & Battery Tech ETF tracks stocks right across the lithium cycle, from mining and refining the metal, through to battery production, offering us protection no matter the way the lithium price move.
But we certainly remain long-term bullish lithium as an industry as a whole. Lithium will remain the predominant metal in most battery applications for the foreseeable and many countries – including the US – are looking to develop domestic lithium industries from scratch.
Aurubis AG (DE: NDA)
Germany-based copper smelter and recycler Aurubis AG (DE: NDA) has fallen from over €100 in early February to around €80, still 20-odd percent up in the model portfolio.
The firm recently began construction of a construction of plant in Belgium to extract copper and nickel from recycled material.
The new hydrometallurgical recycling facility, Bleed treatment Olen Beerse (BOB), will increase the site’s recycling capacity by processing electrolytes, known as bleed, more quickly to recover higher amounts of precious metals.
Both copper and nickel are metals key to energy transition and electrification.
The stock remains a buy up to €100.
Newmont Corporation (NYSE: NEM)
Newmont Corporation (NYSE: NEM), a mining company that primarily produces gold and copper, rose above $55 in late January though fell below $42 on 9 March, before paring losses to trade around $48 at the time of writing, around 26% down from our $65.39 entry point.
Late last month, Newmont, one of the largest gold producers in the world, reported an increase in its gold Mineral Reserves, with reserves totalling 96.1 million attributable ounces for 2022, up from 92.8 million ounces at the end of 2021.
Also, the company’s reserves grew by nearly 4% in 2022, primarily due to new additions at Pueblo Viejo and exploration at Newmont’s managed operations.
To us, NEM is more attractive than ever, trading more than 80% lower than its 52-week highs while yielding over 3.8%. With a cash balance of $3.7 billion, supporting the dividends shouldn’t be a problem.
The outlook for gold remains positive. Factors including geopolitical tensions, inflation and dollar weakness amid a recessionary scenario should add support to gold, putting Newmont in an excellent position to deliver strong free cash flow numbers and take advantage of its excellent proven resources.
In early February, US-listed Newmont launched an all-share bid for its Australian rival Newcrest that values the smaller company at almost AU$24 billion.
Although Newcrest rejected the takeover bid in mid-February, the two companies are to discuss a potential deal, according to reports.
DS Smith (LON: SMDS)
Recycled-content paperboard and packaging producer DS Smith has slipped 3% below our entry price after falling from 369p at the start of February to 306.4p at the time of writing.
Shares fell after the company issued a trading statement on 9 March that said it was seeing lower corrugated box volumes in its fiscal year third quarter, which ran from 1 November 2022 to 28 February this year.
The London-based group, which supplies packaging and paper products to the likes of Amazon and Brewdog, said that volume sales were due to “market weakness”, with businesses de-stocking over Christmas and New Year.
However, the firm said it is continuing to trade in line with profit expectations and stressed that its “robust and flexible” supply chain had offset the lower volumes.
“We have continued to perform well in the second half of the year despite the volatile macro-economic conditions. As expected, profitability and returns have grown strongly and cash generation remains good,” said Miles Roberts, group chief executive.
“We continue to stay very close to our customers and their evolving needs, which, together with a relentless cost focus and robust supply chain, positions us well for the remainder of the year and into our next financial year.”
Although its share price fall is a setback, DS Smith has previously coped well with a difficult economic environment that includes the impact of rising paper, energy and labour costs.
The growth of e-commerce means demand for its boxes should keep climbing, while its decision to move away from plastics is a very prudent long-term move.
At the time of writing, the firm trades on a price-to-earnings (P/E) ratio of 9.6 times for 2023 and boasts an impressive 5.9% dividend yield.
It remains a buy up to 400p.
Watsco Inc (NYSE: WSO)
Heating, ventilation, and air conditioning (HVAC) distributor Watsco Inc (NYSE: WSO) has fallen from $324 in mid-February to $299.63 at the time of writing, still 2% up from our entry point.
The firm, which continues to generate attractive sales, profits and cash flow growth, should benefit from favourable industry dynamics, such as various rebate and incentive programmes in the US that should drive demand for higher-value products in the HVAC industry.
Watsco is still reasonably valued and remains a buy.
Yara International (OL: YAR)
Yara International (OL: YAR), one of the world’s largest producers of nitrogen-based mineral fertilisers, has fallen from NOK 493 in early March to around NOK 438, putting it 10% up in the model portfolio.
The company has been quiet on the news front though remains a good long-term play for investors looking to invest in the agriculture and fertiliser sectors.
Yara’s products are used by farmers to increase crop yields and improve soil health, while the company has a strong commitment to sustainable agriculture – a huge growth area.
The company is also coming off a banner year in 2022, when sales increased from $16.6 billion to $24.1 billion.
It remains a buy up to NOK 500.
