The FANG Tech Takeover
Apple stock has continued to soar post it’s record Q3 earnings result (+11% sales y/y) and the announcement of a stock split, AAPL finished the week up +8% well ahead of the S&P 500 (+1%) and the Nasdaq-100 (+3.5%).
The 5 largest stocks (Facebook, Amazon, Apple, Microsoft and Alphabet) by market capitalization in the US now account for 23% of the S&P 500, above the previous high in 2000 of 18%.
Copper Shines
Copper had a strong week (+3%), outshining its ‘inflation protection’ asset peers. Gold had a decent rebound week (up 1.3%) after one of its most challenging (down -4% the week prior); silver was flat (-0.3%) and Bitcoin fell modestly (-1.6%).
Copper prices have risen higher than $3/lb for the first time since 2018 this week as investors continue to seek a hedge against inflation and an uncertain economic climate.
In a previous piece, we identified Copper as the catch-up trade opportunity to gold and silver in key mining stocks. Other factors such as reduced inventories, decreased output and unprecedented Chinese stimulus have created an increased demand for the use of copper in Chinese infrastructure projects.
It appears that once again like in 2009, China’s role as global manufacturer is a major driver of the current upward momentum of the price of precious metals. The main difference between now and then being major supply disruption due to the impact of COVID-19.
Inflation Protection Basket: Gold, Silver & Copper
Capital 10X provided an early signal to investors about the opportunity in silver in June and we’ve also highlighted the merits of the copper catch-up trade on August 7th.
Globally central banks have significantly increased money supply as a result of the COVID-19 pandemic, which has lead investors to seek the safe-haven of hard assets to protect against inflation, namely gold, silver and copper. All three commodities have posted strong returns YTD.
After very solid Q2-2020 results we examined how Sierra Metals (NYSE:SMTS, TSX:SMT) stacked up against its commodity peers; in a nutshell it’s the inflation protection basket at a deep valuation discount.
Eric Sprott Active in the Small Cap Precious Metals Sector in August
Billionaire investor Eric Sprott has been very active in the small cap precious metals sector in August, here are his key investments month-to-date.
- $1.8M Dolly Varden (another round of equity)
- $4.2M Nubian Resources
- $5.5M Orex Minerals
- $0.4M Stuhini Exploration
- $5.0M Summa Silver
The US Election Providing a Tailwind for U.S. Cannabis
There’s no question that a Democratic victory in November will be viewed unilaterally as a positive for U.S. cannabis stocks. It will ultimately come down to Joe Biden’s ability to topple Donald Trump, a formidable task.
According to Real Clear Politics Biden currently has a 56% chance of victory versus Trump at 43%. Obviously we take the absolute number with a very large grain of salt (ie. Trump’s 2016 victory) but of more interest is the directional change. We believe the first debate between Biden vs. Trump will set the momentum heading into November.
U.S. investors have had a challenging time getting exposure to cannabis companies with operations in America, because of the federal ban on cannabis sales they are not permitted to list.
AdvisorShares will be listing the first US ETF with dedicated exposure to the US cannabis market, it will be listed under the ticker MSOS and is expected to begin trading in early September (if not sooner). This could potentially see a new wave of capital pile into a white hot sector in 2020.
We believe a barbell approach of large MSO’s (Trulieve, Curaleaf, Green Thumb & Cresco) and selective value small caps names would the optimal allocation for investors.
To help you figure out where the opportunities are we started the series “United States of Cannabis”, looking at the most promising states. The map below highlights the top 10 states in America by annualized cannabis sales.
Annualized Sales by State ($MM)
Sierra Metals is a market awareness client of Capital 10X.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.
