Markets & Metals Navigator (October 18th, 2020)

COVID-19 Vaccine Setback and a Surge in Cases Lifts Tech Stocks

The Nasdaq has kept charging along this week driven by ‘work from home’ thematic, the index finished up 3% for the week, while the S&P 500 was flat.

The bellwether for ‘work from home’, Zoom Communications (NASD:ZM), was up 13.5% last week and is up a monstrous 721% year-to-date. Zoom’s forward price-to-sales ratio currently stands at 66x, nearly ten-fold higher than the Nasdaq at 7.6x.

The ‘work from home’ investment thematic performance has been highly correlated with coronavirus cases. We’re currently seeing a second wave of infections in North America and Europe (see chart below).

Adding to negative coronavirus sentiment, Johnson & Johnson pushed the pause button on its COVID-19 clinical trials last week.

This backdrop is very favorable for the telehealth and COVID-19 testing sectors. We’ll be highlighting stock specific opportunities in the coming week.

Everybody Wants a Piece of the Free Money

One of the most fascinating charts we came across this week is the parabolic spike in American business applications.

What this indicates is that many individuals created businesses in the U.S. so that they can apply for Paycheck Protection Program (PPP) Loans from the government, which are forgivable.

This type of activity presents a strong tailwind for inflation.

Sierra Metals: Record Quarterly Production with a Ramp Up to Full Capacity

Sierra Metals (NYSE:SMTS, TSX:SMT) delivered stellar Q3 2020 production results as the company ramps up to full capacity.

Despite the challenging operational backdrop of 2020 with the headwinds of COVID-19, Sierra Metals was able to quickly restart operations and deliver record quarterly production of 35.2 million pounds of copper equivalent production – an increase of +9% year-over-year.

The company continues to ramp up operations to full capacity during a period of structurally strong commodity pricing due to record government money printing.

We believe there are very few companies that offer this level of production growth with a quality underlying asset mix.

Commodities Offer Safety in a World Awash with Negative Yielding Debt

The world’s stockpile of negative-yielding debt has soared to over $16 trillion, just $800 billion shy of its all-time high.

The higher this stockpile climbs the greater the risk of hyper inflation; hard commodities like gold, silver, copper and environmental industrial metals provide a tangible safe haven for investors.

The Gold Bar Can’t Pay You Dividends, Gold Equities Can!

Kirkland Lake announced solid Q3 operational results, however it was the dividend increase that got the attention of investors.

The company increased the quarterly dividend by 50%, from $0.125/share to $0.1875/share.  This increase follows a doubling of the dividend in Q1 2020, see KL’s quarterly dividend history in the chart below.

Gold companies returning capital to shareholder is one of the greatest sweeteners management teams can offer investors vs. their primary competitor – the gold bar, which carries no yield.

U.S. Pot Stocks are Beginning to Price in a Biden Victory, Is there Still Room to Move Higher?

Over the last month U.S. cannabis stocks have tripled the return of the S&P 500 as they begin to price in the likelihood of a Biden victory.

We ask the question, Is there a margin of safety for U.S. cannabis stocks if there’s a surprise Biden loss?

We believe the answer is yes, for two key reasons:

  1. U.S. cannabis stocks have revenue growth in-line or better than the high flying cloud technology stocks.

2. Valuations are much lower for U.S. cannabis stocks versus the high growth tech stocks.

 

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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.

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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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