Marketplace Roundtable – Part 3 – Commodities

~ By Tim Murphy, Marketplace Success Manager

Thank you to everyone for your reading and engagement with Part 1 (Macro) and Part 2 (Value Stocks). Today we continue with commodities. It’s a shorter article with three of our Marketplace contributors giving analysis and a top idea.

Once again, the questions we asked were:

1. What are your major takeaways of your area of coverage so far this year? What are you looking for and expecting for the rest of 2022?

2. What’s one favorite idea for the rest of 2022, and what’s the story?

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*Note for non-Premium readers: If the author provides a link to an article, we have included a dollar symbol ‘($)’ to indicate it is behind the paywall. Articles from this account, SA Marketplace, are not paywalled.

Bang For The Buck of Off The Beaten Path: The rally has continued in 2022 for energy and food related commodities while many industrial commodities have so far had a softer year. The market thinks elevated energy prices will go back lower in the next few years based on futures curves and the very low equity valuations.

Given how well energy prices have done despite inventory drawdowns and China lockdowns, I think the upside risk is larger than downside risk going into the fall. So, while oil-related investment might be the obvious choice, investing in uranium is a cheaper way to get energy-related exposure.

The price of uranium is at the time of this writing around $46/lb, which is well below the average cost of production. The sentiment is starting to turn very positive for nuclear due to a low-carbon focus and extremely high energy prices. We’ve seen countries like France, UK, and South Korea go from planning to shut nuclear reactors early to now actively planning to expand the use of nuclear energy.

IDEA: Yellow Cake (OTCPK:YLLXF) is an investment company that owns uranium, which is a low-risk alternative in the uranium industry. The stock is presently trading with a large 15% discount to net asset value, So, an investment in Yellow Cake should do well if the price of uranium reaches a level that would incentivize supply to come back online to meet the growing demand. The stock will also benefit from a retracement to net asset value, which the stock has traded around historically. See my article here ($).

Disclosure: Long OTCPK:YLLXF

Laurentian Research of The Natural Resources Hub: The commodity super-cycle is playing out so far this year, just as expected.

On the demand side, worldwide populist and decarbonization movements have kept the demand for oil, gas, and metals high. On the supply side, the extractive industries continue to struggle to meet the strong demand for commodities. Years of underinvestment have resulted in woefully inadequate reserves and production capacity for pretty much every kind of commodities. Because it typically takes >7 years to find, delineate and develop a resource project, we cannot expect an investment spree today to fix the structural supply deficit in the foreseeable future.

Commodities are thus a generational investment opportunity that investors cannot afford to miss.

Recent events, including the Ukraine War, manufacturing reshoring, and global supply chain segregation, despite not being the root cause of the commodity crisis, remind us of the commodity super-cycle being in full swing and warn us of its volatility.

IDEA: One of my favorite ideas for the rest of 2022 is Altius Minerals (ALS.TSX)(OTCPK:ATUSF), a mineral royalty company that gives investors exposure to base metals, potash, iron ore and renewable energy, see my article here ($).

Being a royalty business, Altius derives its revenue before any mining operating costs kick in, thus being spared from mine operating costs. So, it’s an ideal choice in today’s inflationary environment amidst the ongoing commodity super-cycle. High-margin and perpetual exploration optionality make it a multi-year compounder. The management is extremely shareholder-friendly because they have substantial skin in the game. Fortunately, a rare selloff of late has made the stock a great value for new investors.

That’s why I believe Altius Minerals ticks all the boxes required of a great investment.

Disclosure: Long OTCPK:ATUSF

Laura Starks of Econ-Based Energy Investing: I cover oil and natural gas, from upstream thru downstream. Due to pullback from Russian oil and gas – where possible in the west – after Russia’s invasion of Ukraine and Russia’s reduced deliveries to big European consumers, oil and gas prices initially reacted the only way an inelastic commodity can short term – with a huge price spike. This benefited oil and gas producers.

Looking ahead, given medium and long-term elasticity for oil and gas, investors should expect tamped-down US demand, (e.g., gasoline) and additional supply (e.g., several announced new LNG projects). Both have and will moderate prices. Oil producers specifically: I expect US companies to weather the Biden administration’s hydrocarbon antipathy. While demand has slowed somewhat in the US, Chinese and Indian demand (both supplied by Russia) will continue, and oil is a global commodity. US oil companies have paid down debt, are keeping fields at or above maintenance levels, and will continue returning money to shareholders.

IDEA: NA