Author: Editor

Global steel prices could rocket higher in the new year.

For one, Tata Steel’s CEO T.V. Narendran expects steel prices to run even higher from current prices. In fact, he says, “I expect to see steel prices at a much higher level than we’ve seen in the last 10 years, over the next 10 years,” as quoted by CNBC.

Two, global steel demand is on the rise thanks to the Infrastructure Act signed into law in November.
Also, remember, of the $1.2 trillion in the bill, nearly $850 billion was set aside for steel investments.

“This could translate into as much as 40 million st to 45 million st of steel demand over the life of the projects, according to the AISI. Looking at just new funding, the AISI estimates an increase of as much as 20 million st to 25 million tons of steel over the life of the authorized projects,” according to the American Iron and Steel Institute (AISI).

That being said, investors may want to pay close attention to these three steel stocks.

Cleveland-Cliffs Inc. (CLF)

Over the last few weeks, there’s been a considerable amount of insider buying. Chairman, President, and CEO Lourenco Gonclaves for example bought 50,000 shares for $1 million.

Chief Financial Officer Celso Goncalves bought 10,000 shares for $206,500. Keith Koci, president of Cleveland-Cliffs paid $218,270 for 10,000 shares. In addition, Director Ralph Michael III bought 10,000 shares for $201,000. All after the stock just pulled back to strong support dating back to May 2021. Even better, there’s solid growth at CLF.

Q3 2021 consolidated revenues came in at $6 billion from $1.6 billion year over year. For the first nine months of 2021, it recorded revenues of $15.1 billion and net income of $2.1 billion, or $3.69 per diluted share. A year earlier, it posted revenues of $3.1 billion and a net loss of $155 million, or a loss of $0.51 per diluted share, as reported in a company press release.

U.S. Steel (X)

US Steel recently crushed earnings and raised its dividend. In its most recent quarter, the company reported adjusted EPS of $5.36 on $6 billion in sales. The Street was looking for adjusted EPS of $4.87 on $5.8 billion in sales. US Steel also hiked its dividend from a penny to five cents, and announced it would buy back $300 million in stock.

“We continue setting records, including record net earnings, record Ebitda, record Ebitda margin, record liquidity, record safety, and record quality and reliability,” said CEO David Burritt, as quoted by Barron’s.

Steel Dynamics (STLD)

After pulling back to solid support around $60.13, STLD is gaining traction. From a current price of $62.80, we’d like to see STLD test prior resistance around $67.50, near-term.

Better, the company anticipates seeing adjusted EPS of $5.69 to $5.73, as compared to analyst expectations for $5.62.

In addition, according to a company press release, “The non-residential construction sector remains strong as evidenced by robust order activity, resulting in another record order backlog and record forward-pricing for the company’s steel fabrication platform. The company anticipates this momentum to continue through 2022 based on these dynamics.”

Markets are rocketing.

The Dow is up 361. The NASDAQ is up 304. The S&P 500 is up about 70.

All after the Federal Reserve said they would wind down pandemic stimulus efforts faster than expected. At the moment, the Fed plans to reduce its monthly Treasury bond purchases by $20 billion, and its mortgage bond purchases by $10 billion.

Now, according to CNBC, “The Fed will be buying $60 billion per month of bonds starting in January, down from December’s rate of $90 million, and said that it will likely continue that trajectory in the months ahead.”

At the same time, the central bank has projected three interest rate hikes in the new year, as it moves to fight hotter than expected inflation.

All after the Fed learned inflation wasn’t transitory.

Over the last few days, we learned the producer price index shot to its highest level on record of 9.6% over the last 12 months. If we strip out food and energy, PPI was still up 6.9%, the biggest increase in seven years. That followed news the consumer price index (CPI) jumped 6.8% year over year – its highest reading since June 1982.

As noted by CNN, “The central banks had been adamant that current inflation will only be temporary, but as it has dragged on and gotten worse, that description [transitory] seemed less and less appropriate.”

With some uncertainty now removed, markets could run to higher highs.

The U.S. is in a dire situation.

Right now, it’s estimated that millions of cars will go electric over the next few years.

According to NBC News, “The auto industry is shifting from internal combustion technology to emissions-free battery and hydrogen powertrains. Several traditional brands have also committed to a complete transition, with Bentley recently laying out a target date of 2030 to switch entirely to battery-electric vehicles, or BEVs. Nissan this week said it will electrify all models by the ‘early 2030s,’ but that will include gas-electric hybrids as well as BEVs.”

All of those EVs must have rare earths, like neodymium and praseodymium, which make up 30% of the magnets.

Unfortunately, we’re running into a major problem that could put the brakes on EVs, and a greener future. You see, for years we’ve been over-dependent on China for rare earth supply.

However, that arrangement isn’t reliable, nor is it safe — forcing us to look elsewhere. Making the situation far worse, China has threatened to withhold rare earth, well aware that if they choke supply, they rattle markets. Far worse, tensions with China are at a boiling point.

It’s why companies, like MP Materials (MP) are gaining a good deal of attention.

Over the last few weeks, MP popped from about $30 to $50. But the run may have just started – especially after General Motors agreed to a strategic collaboration with MP Materials.

According to CNBC, “MP Materials owns and runs the Mountain Pass rare earth mine, located in California near the Mojave National Preserve. Under the deal with GM, MP Materials will supply the Detroit automaker with rare earth materials, alloy and finished magnets that will go into electric motors for vehicles such as the not-yet-launched Chevrolet Silverado EV.”

With many U.S. companies likely to shift away from China for rare earth, this may be the start of a mad rush of deals for MP Materials.

Investors may want to keep it on the buy screen.

Investors may want to use Tesla (TSLA) weakness as an opportunity.

After pulling back from around $1,250 a share, the EV stock appears to have caught strong support around $950. From a current price of $1,046, we’d like to see it test $1,250 again soon. From there, analysts like China Securities’ Zhu Yue say the stock could hit $1,485.

Shortly after, New Street Research analyst Pierre Ferragu raised his target to $1,580.

Analysts at UBS raised their target price on TSLA to $1,000 from $725.

Not to be outdone, we believe it could run to $1,650.

Ferragu says earnings upside, strong production from Tesla’s Shanghai facility, new production capacity in Germany and Texas, and new batteries could fuel upside, as noted by Barron’s.

“For the fourth quarter, Ferragu expects Tesla to deliver about 283,000 vehicles. Wall Street projects about 266,000. What’s more, Ferragu expects about 1.5 million vehicles sold for Tesla in 2022. Current Wall Street estimates for 2022 deliveries range from about 1.3 million to 1.4 million units,” they added.

What we also have to consider is that electric vehicle demand is only expected to ramp up.

According to Bloomberg, “Drivers around the world will buy about 5.6 million electric passenger vehicles this year, according to a new report from BloombergNEF released in concert with the COP26 United Nations Climate Change Conference. That’s almost double the number purchased last year and represents almost 8% of all vehicle sales.”

They added, “Electric vehicles (EV), including battery electric and plug-in hybrids, made up 7.2% of global car sales in the first half of 2021, up from 2.6% in 2019 and 4.3% in 2020, according to new data from BloombergNEF. In North America, EVs made up 3% of sales in the first half but industry observers say 5% is possible as second half sales pick up.”

With the EV boom only set to accelerate, Tesla could be one of the biggest beneficiaries.

 

Oil could easily run to $100. All thanks to years of underinvestment.

In fact, according to Scott Sheffield, CEO of Pioneer Natural Resources, he’s concerned “oil prices could get too high and further roil markets after years of underinvestment in the sector,” as noted by Reuters. “I’m worried that it may get too high, above $100 (per barrel). The Biden administration called up OPEC to increase production and didn’t ask the U.S. to do it.”

Hedge fund manager, Kyle Bass tweeted, “Get ready for explosively higher oil. 7 years of dramatic underinvestment in hydrocarbons fueled by ignorance like this will inevitably generate $100+ crude oil and $5+ prices at the pump for years to come.”

Even Halliburton told Reuters the world could be headed for oil scarcity following years of underinvestment. Plus, we have to consider that SPR has been priced in, too.

JP Morgan says oil could soar to $125 in 2022, and to $150 in 2023.

Unless things change, things could get even rougher at the gas pump. Can you imagine what $125, even $150 oil prices would do to pump prices?

The good news is we can profit from higher oil with ETFs for example, including:

SPDR Energy Select Sector ETF (XLE)

When we first highlighted the XLE, it traded at $52.70. It’s now up to $57.25, and could be headed to $60, near-term. The XLE ETF provides exposure to companies in the oil, gas and consumable fuel, energy equipment and services industries, as noted by State Street SPDR. Not only does an ETF allow for diversification, you can buy it for less.

Invesco DB Oil Fund (DBO)

DBO traded at $13.85 when we first mentioned it. It’s now at $13.35, and could push higher with oil prices. This ETF seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Crude Oil Index Excess Return plus the interest income from the Fund’s holdings of primarily US Treasury securities and money market income less the Fund’s expenses. It trades WTI crude futures.

iShares Global Energy ETF (IXC)

IXC was at $27. It’s now at $28.70, and could push higher. The iShares Global Energy ETF seeks to track the investment results of an index composed of global equities in the energy sector. Trading at $27, some of its top holdings include Exxon Mobil, Chevron Corporation, BP PLC, Total SA, and EOG Resources.

Investors are rolling the dice on beaten down casino stocks.

Over the last few weeks:

• MGM Resorts (MGM) found support around $38 and is pivoting higher
• Penn National (PENN) is starting to bounce after finding support at $50.28
• Las Vegas Sands (LVS) is bouncing from double bottom support
• Wynn Resorts (WYNN) is bouncing from double bottom support around $86.50
• Caesars Entertainment (CZR) is also pushing higher from double bottom support

All as investors look beyond the omicron threat, and push into “reopening” trades.

Even better, according to the American Gaming Association, commercial gaming revenue just hit a new quarterly high of $13.89 billion in the third quarter.

In fact, “With $38.67 billion in revenue through the first nine months of the year, the industry has already passed revenue generated for the full year 2020 and is on pace to smash its annual record of $43.65 billion, set in 2019,” according to the AGA.

“Two straight quarters of record gaming revenue is an incredible accomplishment in any context, let alone after the most challenging year in industry history,” added AGA President and CEO Bill Miller. “Our recovery is not a flash in the pan, but rather a sustained result of our leadership in responsible reopening, world-class entertainment offerings and widespread favorability.”

Even more impressive, nearly half of U.S. states with commercial casinos hit new quarterly records. In Las Vegas, for example, gaming revenue was up to $2.06 billion for Q3 2021 thanks to a big boost in visitors to the Strip this year.

With many casino stocks bottoming out, there’s a good deal of opportunity to be found.

Keep an eye on Apple (AAPL).

After exploding from $145 to $170.30, the tech stock topped out, and pulled back for two reasons. One, the stock was overdue for a pullback from overbought reads on RSI, MACD, and Williams’ %R. Two, there’s a report that demand for iPhone 13 models are weakening.

However, Raymond James analyst Chris Caso called the report “ambiguous.”

“Historically, the best gauge of demand has been the production forecast, and whether that forecast is increasing or decreasing,” Raymond James analyst Chris Caso said, as quoted by Investor’s Business Daily. “The article doesn’t mention changes to the production forecast, but only that Apple has reportedly told suppliers that demand had slowed, which is a more ambiguous statement.”

The ambiguous report is also impacting Qualcomm (QCOM), which is down about $2 on the news, and Skyworks Solutions (SWKS), which is down more than $3 at the moment.

At the same time, Wedbush analyst Dan Ives just raised the firm’s price target to $200 from $185, with an outperform rating. All because he has “increased confidence” in the 2022 iPhone 13 growth cycle.

“The checks ‘continue to be much stronger than expected’ and Apple is now on pace to sell north of 40M iPhones during the holiday season despite the chip shortage headwinds,” Ives said, as quoted by TheFly.com. “The analyst believes the underlying iPhone 13 demand story both domestically and in China ‘is trending well ahead of Street expectations.’”

Ives also believes Apple could be a $3 trillion company in 2022.

So, we have one report saying iPhone 13 sales are slowing. A second report called that report ambiguous. And a third report has “increased confidence.”

Interesting. Let the weak hands shake out first. This Apple pullback may be temporary.

Shares of Vir Biotechnology (VIR) are skyrocketing.

At the moment, shares are up 16%, or $6.50 a share on heavy volume of 5.77 million shares, as compared to its daily average of 997,195.

All after HC Wainwright analyst Patrick Trucchio raised the firm’s price target from $135 to $200 a share, with a buy rating. He expects to see a “robust” COVID-19 antiviral market, with Vir as a leader, reports TheFly.com.

“Several recent updates suggest that Vir and its collaboration partner GlaxoSmithKline (GSK) are likely to maintain a top-tier COVID-19 antiviral franchise, led at first by sotrovimab, ‘for the foreseeable future,’” Trucchio said, as also quoted by TheFly.com.

Helping, GSK and VIR recently announced U.S. government contracts totaling about $1 billion to purchase sotrovimab for early treatment of COVID-19. The US FDA also granted Emergency Use Authorization in May 20221.

“It certainly is an effective antibody against Covid, but also against SARS, also against many other coronaviruses,” Vir President and CEO George Scangos told CNBC. “So not only, I think, do we have an antibody that stands up well to all the variants received from Covid, but potentially can help in future coronavirus pandemics as well.”

 

Get set for higher oil prices.

According to JP Morgan, oil will hit $125 a barrel in 2022, and up to $150 by 2023.

“OPEC+ is not immune to the impacts of underinvestment…. We estimate ‘true’ OPEC spare capacity in 2022 will be about 2 million barrels per day (43%) below consensus estimates of 4.8 million,” said the JP Morgan analysts led by Christyan Malek, as quoted by TheStreet.com.

In addition, the analysts noted that producers “have failed to put up the amount of capital required to ramp up production enough to meet demand. The Wall Street bank estimates there is a $750 billion gap in terms of global oil capital spending, requiring oil to rise to $80 to incentivize further investment,” as reported by CNN.

Not helping, new COVID variant news is raising fears of a global travel ban, and the potential for weaker oil demand. Plus, all eyes on are OPEC+, which postponed its meetings over oil prices to assess the impact of the virus. Some analysts also expect for OPEC+ to pause its planned monthly increases of 400,000 barrels per day in 2022 to balance the market.

All could send oil and gas pump prices significantly higher.

SPDR Energy Select Sector ETF (XLE)

When we first highlighted the XLE, it traded at $52.70. It’s now up to $54, and could be headed to $60, near-term.

The XLE ETF provides exposure to companies in the oil, gas and consumable fuel, energy equipment and services industries, as noted by State Street SPDR. Not only does an ETF allow for diversification, you can buy it for less.

Invesco DB Oil Fund (DBO)

DBO traded at $13.85 when we first mentioned it. It’s now at $12, and could push higher with oil prices. This ETF seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Crude Oil Index Excess Return plus the interest income from the Fund’s holdings of primarily US Treasury securities and money market income less the Fund’s expenses. It trades WTI crude futures.

iShares Global Energy ETF (IXC)

IXC was at $27. It’s now back to breakeven, and could push higher. The iShares Global Energy ETF seeks to track the investment results of an index composed of global equities in the energy sector. Trading at $27, some of its top holdings include Exxon Mobil, Chevron Corporation, BP PLC, Total SA, and EOG Resources.

Lithium could be one of the hottest stories of 2022.

For one, according to Bloomberg, “Global lithium consumption is projected to grow fivefold by end of this decade, according to BloombergNEF. Tightening supplies are sparking a wave of deal making among lithium miners, with Ganfeng and other producers involved in a flurry of acquisitions in recent months.”

Two, according to S&P Global, “There is the quadrupling of demand in just five years and probably a growth of six or seven times over 10 years. So, clearly the industry is not prepared today for that level of demand – the amount of incremental capacity that the industry needs over the next 10 years is at least 1.5 million mt and in terms of capital investment, will probably require $45 billion-$50 billion of investment into new projects or expansions of existing operations.”

Three, according to Benchmark Mineral Intelligence, “there’s a lack of available material.”

Until that changes, lithium prices – and related stocks could rocket to higher highs.

Look at Lithium Americas (LAC) for example.

Analysts at National Bank just reiterated an outperform rating on the stock with a price target of $40 a share. Granted, the company isn’t producing lithium just yet, but that’s expected to change in the new year. Construction activities at Caucharí-Olaroz remain on track to achieve first production by mid-2022 on the initial 40,000 tonnes per annum operation.

At Thacker Pass, results of a Feasibility Study on the first phase of Thacker Pass (for at least 30,000-35,000 tpa of lithium carbonate) are expected by year end. Engineering is underway to consider a 20,000 tpa lithium hydroxide chemical conversion plant, to provide flexibility to meet potential customer and partner needs.

Or, look at Albemarle (ALB).

Shares of ALB are up to $276, with the lithium story showing no signs of slowing down.

In fact, according to Bloomberg, “Albemarle Corp., the world’s biggest lithium producer, is expanding as quickly as possible and evaluating new opportunities as buyers of the battery metal struggle to keep up with surging electric-vehicle demand.”

Or, look at Livent (LTHM).

Livent is now up to $30.84, and could see $40 in the new year.
“Livent remains on track to deliver its near-term capacity expansions, with the 5,000 metric ton hydroxide addition in Bessemer City and initial lithium carbonate expansion of 10,000 metric tons in Argentina expected to reach commercial production by the third quarter of 2022 and the first quarter of 2023, respectively. The phase 2 carbonate expansion for an additional 10,000 metric tons is scheduled to be in commercial production by the end of 2023,” according to a Livent press release.