Markets & Metals Navigator: IPO Frenzy and Commodities Keep Roaring

IPO Frenzy Grips the Market – Retail Traders are Running the Board

Last week the market was griped by IPO fever, two hotly anticipated IPOs hit the market – DoorDash (NASD:DASH) and Airbnb (NASD:ABNB).  DoorDash and Airbnb rallied 70% and 80% respectively on their first days of trading.

First day IPO returns haven’t been this high since the dot-com bubble (1999/2000), the average first day return for IPOs in 2020 is nearly 40%.

If we include the proceeds from the speculative Special Purpose Acquisition Company (SPAC) asset class the current US IPO boom eclipses the dot-com era by $50 billion.

Retail trading has been a significant driver of the current stock market exuberance,  similar to the dot-com boom – however this time the trading volumes are much higher (see chart below).

Market Drivers into Year End: COVID Vaccine & Stimulus

US markets rallied to start off the week (S&P 500 +1%) on the back of the Pfizer COVID-19 rollout and the hopes of a sizable stimulus bill. Today’s market gains effectively erases last week’s down week, where all asset classes (except for gold) were down between 1% to 2%.

Commodities Keep Roaring Higher

The Bloomberg Commodity Spot Index has hit the highest level since 2014 as the world economy rebounds from COVID-19. Copper is surging and oil is showing early signs of recovery.

Goldman Sachs has predicted strong commodity markets for 2021 in their annual outlook, they stated the upswing will be driven by three major themes:

  1. A lack of investment over the past decade has left inadequate production capacity to meet a V-shaped, vaccine-driven recovery
  2. Policies to combat COVID are aimed at social need that will likely create a cyclically stronger and more commodity-intensive economic growth.
  3. Commodities will benefit from revaluation and reflation with a massive rise in government spending, particularly in the U.S.

Capital 10X has been firmly of the view that “Dr. Copper” is sniffing out growth and inflation in the economy and it’ll be a matter of time before we hit all-time highs for the red metal.

On a forward price-to-cash flow basis Sierra Metals (NYSE:SMTS, TSX:SMT) continues to screen the cheapest among the copper miners at 4.6x.  Lundin Mining and First Quantum trade at 6.0x and 5.7x respectively, while Freeport is the most expensive of the group at 8.0x.

Sierra Metals recent preliminary economic assessments (PEAs) for its three major mines (Yauricocha, Bolivar & Cusi) point to significant upside in the Net Asset Value of the company. This value will ultimately flow through to future cash flow, further enhancing the company’s attractive valuation versus copper mining peers.  Capital 10X will be highlighting the upside of the new PEAs in a report this week.

Largo Resources Expands into the Vanadium Redox Flow Battery Business

Last week Largo Resources (TSX: LGO, OTCQX: LGORF) launched Largo Clean Energy, a newly formed company that will provide vanadium redox flow battery (VRFB) systems to the global renewable energy storage market.

The market warmly welcomed the news, sending shares up 31% on the day of the announcement. The stock is still well below its previous peak of $4.50/share, representing one of the few attractive commodity catch-up trades.

The global energy storage capacity market is estimated to grow at a compound annual growth rate (CAGR) of 31% to 741 gigawatt-hours (GWh) of cumulative capacity by 2030, therefore it is a logical play for Largo to make a strong expansion in VRFB vertical.

Largo Inc. is a market awareness client of Capital 10X.

Sierra Metals is a market awareness client of Capital 10X.

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