The Summer Stock Playlist

Source: Malcolm Shaw 05/17/2024

Malcolm Shaw of Hydra Capital Partners shares his summer list of stocks to keep an eye on.

Over the years, we all develop our own personal collections of favorite songs. These are the tunes that we either can’t get enough of right now or couldn’t stop listening to at some point in the past. In many ways, stocks are quite similar. The factors that influence an investor’s choice of stocks for their portfolio are often the same ones that draw people to certain songs. Just as certain songs resonate more strongly in particular weather conditions or seasons, certain stocks may appeal to investors based on the current market environment. The songs whose lyrics you know by heart are the ones you’ll never forget, even with just a little prompting. You develop a deep familiarity with those songs, much like you do with stocks over time.

Moreover, stocks, like music, can be categorized into various groups and sectors. In the world of music, we have genres such as Rock, R&B, Classical, Punk, Electronic, and Country. Similarly, stocks are classified into sectors like Energy, Financials, Materials, Consumer Discretionary, Utilities, and Industrials. Some individuals choose to specialize in one area, while others prefer to explore a little bit of everything. However, ultimately, everyone tends to gravitate towards and develop expertise in the sector or two that capture their interest, dedicating the majority of their time and effort to those particular areas.

In my career, I have found myself drawn to the energy and metals sectors. Considering the aforementioned points, as we approach the summer season, I’ve put together a playlist that features a mix of timeless classics and fresh, promising tracks that I believe have the potential to gain popularity. As is always the case, I can only highlight a portion of what I come across, as it’s impossible to cover everything. So, without further ado, let’s dive into the selections that made the cut for this playlist.

Copper

In March, I expressed my desire for copper prices to surpass $4 per pound, and my wish was promptly granted. As I write this, copper is trading at $4.65, and while it may be exhibiting some frothiness, numerous thematic factors are working in its favor. The intersection of electrification and AI trends, coupled with a lack of investment in new mines, is occurring at a time when the process of discovering, planning, permitting, and constructing new mines has become more time-consuming and capital-intensive than ever before.

Copper prices could skyrocket to $6 tomorrow, and no one could do anything about it. The physical market is tight, copper is often irreplaceable, and $6 is not exceptionally high in the grand scheme of things. Although a slight increase in scrap supply might occur at $6 per pound, mine supply would remain stagnant.

So, what’s the solution?

In my opinion, it’s a classic copper bull market where the internet’s influence comes into play, and a fraction of the individuals trading tech stocks stumble upon the mining industry due to attention-grabbing headlines. Imagine the earnings that major producers would report if copper reached $6. It would seem like money was raining from the sky, yet my supply would still require time to respond. The most viable option for a significant impact on the supply/demand equation would likely be the restart of Cobre Panama, but that seems improbable in the near future.

So, what could possibly hold copper back once sentiment reaches its tipping point?

I’m uncertain. Consequently, I remain bullish on copper until proven otherwise. There are so few feasible ways to invest in copper producers at present that those seeking to capitalize on copper will have no choice but to shift their focus to smaller companies, such as developers and exploration companies. If copper prices remain near current levels or continue to rise, copper producers’ office parties will be brimming with champagne-fueled celebrations. Some copper producers, such as Hudbay and Capstone, are already starting to look somewhat expensive to me, to the point where I believe mergers and acquisitions are becoming more appealing to them as acquirers for the first time in a long while… but what do I know about expensive valuations? It’s been a long time since anyone, including myself, has witnessed a genuine bull market, and it’s easy to forget how crazy things can get when the party is in full swing. I suppose we’ll find out, but the recent breakout above $4 is still relatively fresh, so this $4+ copper world is the new normal . . . at least for the time being.

Currently, I am keeping a keen eye on Foran Mining (FOM.TO, last at $4.26), First Quantum (FM.TO last at $18.24), Hercules Silver (BIG.V, last at $0.82), Midnight Sun Mining (MMA.V, last at $0.23), Surge Copper (SURG.V, last at $0.14), Libero Copper (LBC.V, last at $0.42), and Sun Peak Metals (PEAK.V, last at $0.43).

Gold

Gold stocks today remind me of how energy stocks felt in early 2021. While some gold stocks are finally reaching 52-week highs, many have yet to do so, and most have not surpassed their 2021 highs. This is despite the fact that gold prices are at an all-time high in nominal terms.

The market’s reactions to earnings reports from companies like Agnico Eagle, Newmont, and Kinross all indicate what’s in store for the sector. Unless gold prices experience a significant decline, we can expect to see higher cash flows, increased earnings, upgrades to analysts’ target prices, positive momentum, interest from quantitative models, index rebalancing and inclusions, and new highs being reached.

Any sustained period of gold prices above $2,000 per ounce is indeed a very favorable scenario for the industry. For once, the margins of gold producers are increasing at a faster rate than their costs, resulting in the sector beginning to generate substantial profits. Just as the market was skeptical of the oil price rally in early 2021, it seems to be doubtful of the current gold price surge.

However, major banks are now fully supportive of gold, which attracts incremental interest. In the gold sector, due to its relatively small size compared to the rest of the market, even a modest inflow of additional funds can significantly impact stock prices. Despite the recent volatility in gold prices, gold stocks appear to be largely unaffected, which I interpret as a positive sign.

Here are some gold companies I am currently interested in: Dundee Precious Metals (DPM.TO, last at $11.05), Ascot Resources (AOT.TO, last at $0.71), K92 Mining (KNT.TO, last at $8.02), and Kinross (K.TO, last at $10.38).

Energy

Now, onto energy, I have a few stocks that have piqued my interest.

This includes Tenaz Energy (TNZ.TO, last at $4.01), Tag Oil (TAO.V, last at $0.50), Condor Energies (CDR.TO, last at $1.86), Valeura Energy (VLE.TO, last at $5.10), and Sintana Energy (SEI.V, last at $0.97).

Uranium

The most intriguing tidbit I have to share about uranium is that a small company called District Metals (DMX.V, last at $0.43 might be receiving news in the near future regarding the potential lifting of the uranium mining ban in Sweden.

If Sweden begins discussing the possibility of permitting uranium mining, DMX could experience a rapid re-rating, given that it owns a uranium deposit in the country containing a billion pounds of the metal. Of course, it’s important to note that mining the entire deposit would be unlikely, but the mere ability to claim ownership of a billion pounds of uranium certainly has a nice ring to it. This fact alone could lead to some intense promotion, depending on how the market reacts to the news.

As with any playlist, there are always more songs you want to include, but there’s a limit to how long it can be. So, I’ll wrap things up here for now.

Happy hunting!

Sign up for our FREE newsletter at: www.streetwisereports.com/get-news

Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Libero Copper.
2. Malcolm Shaw: I, or members of my immediate household or family, own securities of: All. I determined which companies would be included in this article based on my research and understanding of the sector.
3. Statements and opinions expressed are the opinions of the author and not of Streetwise Reports, Street Smart, or their officers. The author is wholly responsible for the accuracy of the statements. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Any disclosures from the author can be found below. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4. This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.

For additional disclosures, please click here.

Disclosures for Hydra Capital

This is not investment advice, nor is it a recommendation to buy or sell shares in the company/companies mentioned.

The information contained herein is accurate to the best of the author’s knowledge, but the material and interpretations contained herein should be independently verified by any party using this information as part of any research, editorial, or decision making process. Any views expressed here represent the author’s opinion only, and as such readers should do their own research and come to their own conclusions if they are using the opinions contained herein as part of any larger due diligence process. The author may have long or short positions in the companies mentioned and may be buying or selling in the market depending on which way the wind is blowing at any given moment. Opinions are subject to change without notice. Prospective resources, predictions, comparisons, financial projections, and extrapolated metrics are, by their nature, subjective and interpretation dependent. The topics covered are highly speculative and involve a high degree of uncertainty and risk. Speculative companies can and do go to zero. By using this site, you agree that the author(s) and Hydra Capital is/are not responsible for any damages incurred by the use of the presented materials. Anyone reading these blog posts should know that they are the author’s thoughts and opinions, which are not to be confused with or construed as research reports.