Markets and Metals Navigator (September 20, 2020)

Third Straight Red Week for US Equities, Bitcoin Gets Bid

US equities have struggled to regain their groove since the market top on September 2nd, the Nasdaq is off -11% since the peak, it’s worse pullback since the COVID-19 sell off in March. Last week Nasdaq fell -3% and the S&P 500 was down -1%.

Bitcoin had one of its best weeks since the selloff, up 6% on the week to $11,083.  Investors likely saw a value opportunity in BTC vs. gold and silver, all three representing inflation hedges versus central bank money printing.

The resiliency of gold and silver during the market volatility in September has been very supportive of the fundamental view that institutional investors have kept a strong “inflation protection” bid behind the metals.

The Tech IPO Frenzy

Last week we saw the biggest week for tech IPOs in 2020, with Snowflake (NASD:SNOW), JFrog (NASD:FROG), Sumo Logic (NASD:SUMO) and Unity (NASD:U) all coming to market.

While the broader Nasdaq struggled this month, investor demand for high growth tech companies remains strong in a world of low rates and limited growth, each IPO had strong 1st day pops: Snowflake +112%, JFrog +47%, Sumo Logic +22% and Unity +31%.

The following YTD chart compares the performance cloud computing companies (NASD:CLOU) vs. the Nasdaq and the S&P 500; the bet in 2020 has clearly been for those companies that will thrive in a digital workplace.

The transition to a digital economy also helps explain why 84% of assets on the balance sheets of companies in the S&P 500 are intangible.

The Era of Competitive Paper Money Devaluation

The combined balance sheet of US Federal Reserve, Bank of Japan and European Central Bank have hit a record $21.3 trillion, implying that paper money continues to be devalued.

We recommend Capital 10X subscribers have a read of this very engaging interview with Ray Dalio in MarketWatch, where he outlines how the world will change in the next five years.

“If you look at the history — for example, the Dutch Empire, the British Empire — both experienced the creation of debt and the printing of money, less educational advantages, greater internal wealth conflict, greater challenges from rival countries…..

The U.S. has a lot of debt, which is adding to the hurdles that typically drag an economy down, so in order to succeed, you have to do a pretty big debt restructuring. History shows what kind of a challenge that is.”

We’re seeing signs of inflation everywhere despite not showing up in headline US CPI, the Wall Street Journal ran an article last week about the robust rare plant market and Yahoo highlighted the booming baseball card market.

In 2020 Capital 10X has been pounding the table for investors to own tangible hard assets that will protect vs. inflation; namely gold, silver and copper.

US Cannabis Bellwether Trulieve Expands & the Most Anticipated Psychedelic IPO Comes to Market

Trulieve

Trulieve (CNSX: TRUL) announced on September 16th after market that they are entering the Pennsylvania cannabis market by acquiring both growing and retail assets, in conjunction with a capital raise of $100.5 million (at $24.50/share).

Trulieve is arguably the best cannabis operator in the US, delivering the best returns on equity (ROE) in the industry (see graph below vs. US peers). Expansion in the east coast is very much on strategy and the Pennsylvania medical market is a great fit.

Investors are getting a business that returns significantly above average equity returns for a valuation multiple that is in-line with peers (that have negative ROEs), Trulieve trades at 3.4x 2021 sales.

Psychedelics: Compass Pathways

Capital 10X has viewed the majority of the micro-cap companies in the emerging psychedelic sector as premature concepts with poorly structured capitalization tables (too many cheap shares outstanding).

The IPO of Compass Pathways (NASD:CMPS) has brought a legitimate psychedelic entrant to the public markets.  The shares surged 71% on it’s IPO day (Friday) taking the market cap to $1 billion.

The company was founded in 2015, they have conducted FDA phase 1 and are currently in phase 2B studies using psilocybin capsule extracts in combination with psychotherapy to treat major depression disorders – specifically treatment resistant depression.

The estimated addressable market for treatment resistant depression is $1bn to $1.5bn.

 

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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.

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Capital 10X gets down to the real money business, actionable financial insights for traders and investors. We analyze company earnings, interview management teams and help teach the fundamentals of financial analysis and options trading. Our mission is to hunt for genuine 10 baggers.
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