The debate is raging: Is inflation “transitory”, or are we seeing the foundation for a more lasting inflation problem coming into being?
It may be the most important fork in the road for investors in years.
The Fed has painted itself into a corner where all potential outcomes must be seen as transitory because its overriding outlook would lose credibility under any other interpretation.
Larry Summers, the prominent economist, former Vice President of Development Economics and Chief Economist of the World Bank, senior U.S. Treasury Department official throughout President Clinton’s administration, and former director of the National Economic Council for President Obama, has gone on record as suggesting this approach is worrisome because such things cannot be predicted with consistency, and the data is already in place that the recovery, in broad macro terms, is well ahead of any conceivable timeline at this point.
In other words, the time to start removing the punch bowl is now. But those at the helm at the Fed and Treasury are of no such mind. Hence, the gas pedal will stay on the floor in both fiscal and monetary terms.
For investors, this suggests amplified exposure to assets that benefit from inflationary pressure should be considered, including ETFs such as the United States Commodity Index Fund (NYSEARCA:USCI), United States Oil ETF (NYSEARCA:USO), and iShares Silver Trust (NYSEARCA:SLV).
On an individual stock level, that points to stocks like Freeport-McMoRan Inc (NYSE:FCX), Pan American Silver Corp (NASDAQ:PAAS), Camber Energy Inc (NYSEAMERICAN:CEI), and Intrepid Potash Inc (NYSE:IPI).
Freeport-McMoRan Inc (NYSE:FCX) trumpets itself as a leading international mining company with headquarters in Phoenix, Arizona. FCX operates large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold and molybdenum. FCX is one of the world’s largest publicly traded copper producers.
FCX’s portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits; and significant mining operations in North America and South America, including the large-scale Morenci minerals district in Arizona and the Cerro Verde operation in Peru.
Freeport-McMoRan Inc (NYSE:FCX) recently released its Q1 results, including net income attributable to common stock in first-quarter 2021 totaling $718 million, $0.48 per share, and adjusted net income attributable to common stock totaling $756 million, or $0.51 per share, after adjusting for net charges totaling $38 million, $0.03 per share.
According to the company’s release, consolidated sales totaled 825 million pounds of copper, 258 thousand ounces of gold and 21 million pounds of molybdenum in first-quarter 2021. Consolidated sales for the year 2021 are expected to approximate 3.85 billion pounds of copper, 1.3 million ounces of gold and 85 million pounds of molybdenum, including 975 million pounds of copper, 330 thousand ounces of gold and 21 million pounds of molybdenum in second-quarter 2021.
The context for this announcement is a bit of a bid, with shares acting well over the past five days, up about 5% in that timeframe.
Freeport-McMoRan Inc (NYSE:FCX), overall, generated sales of $4.6B, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 10% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($4.7B against $4.6B).
Pan American Silver Corp (NASDAQ:PAAS) frames itself as “the world’s second largest primary silver producer”, providing enhanced exposure to silver through a diversified portfolio of assets, large reserves and growing production.
The company notes, “We own and operate mines in Mexico, Peru, Canada, Argentina and Bolivia. In addition, we own the Escobal mine in Guatemala that is currently not operating. Pan American has a 27-year history of operating in Latin America, earning an industry-leading reputation for operational excellence and corporate social responsibility.”
Pan American Silver Corp (NASDAQ:PAAS) recently announced results for 28 additional holes drilled at the La Colorada skarn deposit and an update of the project development.
“Definition drilling continues to add confidence and scope to the skarn deposit, confirming wide, high-grade zones with intercepts up to 277 metre drill widths. Geological and resource modeling are currently underway to provide the foundation for a preliminary economic assessment,” said Christopher Emerson, Pan American’s Vice President Business Development and Geology. “The 65,000-meter annual drill program prioritizes infill drilling during the first half of 2021, moving to step-out and exploration drilling in the second half of the year.”
Even in light of this news, PAAS hasn’t really done much of anything over the past week, with shares logging no net movement over that period. Shares of the stock have powered higher over the past month, rallying roughly 6% in that time on strong overall action.
Pan American Silver Corp (NASDAQ:PAAS) generated sales of $466.1M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of -16.9% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($259.4M against $408.2M, respectively).
Camber Energy Inc (NYSEAMERICAN:CEI) is an interesting player in the oil and gas space. This is a small cap that appears potentially undervalued given its exposure and breadth, and its potential for future growth as its overall production and strategic roadmap ramp up.
With the oil space flirting with another round of new highs, this small-cap big board E&P player with oil and gas properties spread across Oklahoma, Texas, Louisiana, Mississippi, Kansas, and the Gulf Coast, has positioned itself through acquisitions that seem to be outperforming reasonable expectations.
Camber Energy Inc (NYSEAMERICAN:CEI), for example, has a recently acquired wholly-owned subsidiary, Viking Energy Group Inc (OTCMKTS:VKIN), that just posted a round of eye-opening results for Q1, including revenues topping $10 million and an adjusted EBITDA of $4.63 million.
James Doris, President and Chief Executive Officer of both Camber and Viking, commented, “We are pleased with Viking’s Q1 results, especially following the unprecedented conditions experienced in 2020. We are extremely encouraged with the foundation we have established, and are intensely focused on pursuing growth opportunities.”
CEI shares have pulled back from recent highs of over $2/share to now print in the $0.60-0.70 area. Given the company’s broad interests and its exposure to the raw goods theme during a ramp in inflation expectations, this may represent an interesting opportunity.
Intrepid Potash Inc (NYSE:IPI) frames itself as a diversified mineral company that delivers potassium, magnesium, sulfur, salt, and water products essential for customer success in agriculture, animal feed, and the oil and gas industry.
Intrepid is the only U.S. producer of muriate of potash, which is applied as an essential nutrient for healthy crop development, utilized in several industrial applications, and used as an ingredient in animal feed. In addition, Intrepid produces a specialty fertilizer, Trio, which delivers three key nutrients, potassium, magnesium, and sulfate, in a single particle. Intrepid also provides water, magnesium chloride, brine, and various oilfield products and services.
Intrepid Potash Inc (NYSE:IPI) recently announced the updates to its fertilizer pricing that offer important clues as to the company’s pricing power. For example, effective May 17, 2021, Intrepid increased its Trio price by $20 per ton on all product grades. Trio® price is now posted at $100 per ton above the 2020 summer-fill value. In response to fill programs announced by competitors in early May, Intrepid increased its potash price by $20 per ton last week. Potash price is now posted at $150 per ton above the 2020 summer-fill value.
“Tightening supply and strong farmer economics have Intrepid on pace for record domestic deliveries of Trio® in the first half of 2021.” said Bob Jornayvaz, Intrepid’s Executive Chairman, President, and CEO. “At today’s commodity prices, Trio® continues to provide significant nutrient value to both row crops and chloride-sensitive crops such as citrus and potatoes. The potash fill program allowed for a limited order period for historic volumes and distributors are restocking warehouses ahead of what will likely be another strong fertilizer application in the second half of the year.”
And the stock has been acting well over recent days, up something like 9% in that time.
Intrepid Potash Inc (NYSE:IPI) pulled in sales of $71.5M in its last reported quarterly financials, representing top line growth of 11.7%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($36.2M against $78.9M, respectively).