Commodity Stocks For the Win as the Fed Falls Behind the Curve (CLF, CEI, CCJ, X, SLB, BHP, AA)

The Federal Reserve is set to conclude its two-day December meeting today with an announcement likely to involve a speeding up of the QE taper process in reaction to its growing awareness that inflation can no longer be said to be “transitory”.

Yesterday’s Producer Price Index data further confirms this notion, setting a new all-time record high at +9.6% year-over-year. CPI numbers have also routinely beaten estimates, with consumer inflation is now at the highest year-over-year level since 1982.

This difficult situation has grown out of strong demand and difficult logistical hurdles, as we move from pandemic lockdowns to a reopening recovery fueled by tons of stimulus in major developed world economies. 

That’s a recipe for rampant commodity price inflation, which ultimately will pay off for shareholders of companies with strong positioning in the commodity complex.

Given that dynamic, we take a look below at some of the most interesting names in the commodity space.

 

United States Steel Corp. (NYSE:X) engages in the manufacturing and selling of steel products. It operates through the following business segments: Flat-Rolled Products, U.S. Steel Europe, and Tubular Products. 

The Flat-Rolled Products segment includes managing steel plants and production facilities that manufacture steel slabs, rounds, strip mill plates, sheets, tin mill, iron ore, and coke. The U.S. Steel Europe segment offers producing and marketing strip mill plates, spiral welded pipe, heating radiators, refractory ceramic materials. The Tubular Products segment involves in manufacturing and trading seamless and electric resistance welded steel casing and tubing. line pipe, and mechanical tubing. 

United States Steel Corp. (NYSE:X) recently announced, along with Norfolk Southern Corporation (NYSE: NSC) and The Greenbrier Companies, Inc. (NYSE: GBX), a new, more sustainable steel gondola railcar. Using an innovative formula for high-strength, lighter-weight steel developed by U. S. Steel, each gondola’s unloaded weight is reduced by up to 15,000 pounds. Gondola railcars transport loose bulk material such as metal scraps, coils, wood chips, steel slabs and ore. Norfolk Southern will initially acquire 800 of the Greenbrier engineered gondolas.

According to the release, the partnership between supplier, builder and end-user is rooted in the recognition that North America’s aging gondola fleet will soon require substantial replacement with a more sustainable design. U. S. Steel’s materials innovation, Norfolk Southern’s commitment to sustainable freight transportation and Greenbrier’s deep engineering capability have led to a stronger, lighter and more energy-efficient product for the freight rail industry. U. S. Steel is a leader in designing advanced, lightweight and high-strength steel solutions for the automotive industry. It identified the interconnections between steel advancements for automobiles and adapted these to the rail industry.

It will be interesting to see if the stock can break out of its recent sideways action. Over the past week, the stock is net flat, and looking for something new to spark things. 

United States Steel Corp. (NYSE:X) managed to rope in revenues totaling $6B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 157.4%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($2.1B against $4B, respectively).

 

Camber Energy Inc (NYSE American:CEI) has become something of a meme stock, with active mentions on the WallStreetBets Reddit group over recent months, which helped to fuel moves of several hundred percent gains in short spans. That type of energy can resurface at any time. That, along with reports of high short interest and a small float in play, makes this stock extremely interesting.

The company has exposure to oil and gas assets through its majority-owned subsidiary, Viking Energy Group Inc (OTC US:VKIN), which has energy assets located in North America in Kansas, Missouri, Texas, Louisiana, and Mississippi. It has also gained exposure to the carbon capture theme through a recent agreement.

Camber Energy Inc. (NYSE American:CEI) most recently announced that, on November 18, its Viking subsidiary entered into a Membership Interest Purchase Agreement to acquire a 100% interest in a group of companies that are in the process of engineering, developing, constructing and bringing into commercial operations a processing plant located in Reno, Nevada, which is designed to produce renewable diesel. 

According to the release, the estimated production capacity of the Plant once operational is 43,000,000 Gallons per year. The main part of the Plant is 95% complete and there is a pre-treatment unit under construction within the Plant that is 30% complete. Renewable diesel fuel, sometimes called green diesel, is a biofuel that is chemically the same as petroleum diesel fuel, and is produced through various thermochemical processes such as hydrotreating, gasification, and pyrolysis. Renewable diesel is made from renewable feedstocks instead of crude oil. 

Shares of the stock have been walking along key support at its 200-day moving average. This follows a sharp pullback spurred on by a questionable bear report from a hedge fund clearly short the stock in late September. That took the stock down as much as 75% in a week. Even so, CEI shares are still up over 100% since August, so the trend remains on the side of its bulls.

Camber Energy Inc. (NYSE American:CEI) has seen more than half of its VKIN subsidiary’s shares sold short over recent trading sessions according to OTCshortreport.com. With oil in a longer-term bull trend that seems to be resilient even in the face of the new Omicron variant, the stage could be set for some potential strength ahead, so it could pay to have this stock on the radar.

 

Schlumberger Ltd. (NYSE:SLB) is a key player in the oil services space. The company deals in the provision of technology for reservoir characterization, drilling, production and processing to the oil and gas industry. It operates through the following business segments: Digital and Integration; Reservoir Performance; Well Construction; and Production Systems. 

The Digital and Integration segment combines the company’s software and seismic businesses with its integrated offering of asset performance solutions. The Reservoir Performance segment consists of reservoir-centric technologies and services that are critical to optimizing reservoir productivity and performance. The Well Construction segment includes the full portfolio of products and services to optimize well placement and performance, maximize drilling efficiency, and improve wellbore assurance. The Production Systems segment develops technologies and provides expertise that enhances production and recovery from subsurface reservoirs to the surface, into pipelines, and to refineries.

Schlumberger Ltd. (NYSE:SLB) recently announced that Schlumberger Investment SA, an indirect wholly-owned subsidiary of Schlumberger, will redeem the entire outstanding principal amount of its 2.40% Senior Notes due 2022 (CUSIP Nos. 806854AD7 / L81445AD7; and ISIN Nos. US806854AD77 / USL81445AD75). The redemption date for the Notes is May 2, 2022.

According to the company’s release, the aggregate principal amount of the Notes outstanding is $1,000,000,000. SISA has deposited sufficient funds with The Bank of New York Mellon, the trustee under the indenture governing the Notes, to satisfy and discharge the Notes and the indenture with respect to the Notes (including payment of the February 1, 2022 interest payment with respect to the Notes and the redemption price payable on the Redemption Date), and the trustee has acknowledged such satisfaction and discharge.

The stock has suffered a bit of late, with shares of SLB taking a hit in recent action, down about -2% over the past week. 

Schlumberger Ltd. (NYSE:SLB) managed to rope in revenues totaling $5.8B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 11.2%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($2.9B against $9.7B, respectively).

 

Other key names in the commodity space that could benefit from continued inflationary pressure include Cleveland-Cliffs Inc. (NYSE:CLF), Cameco Corp. (NYSE:CCJ), BHP Group Ltd. ADR (NYSE:BHP), and Alcoa Corp. (NYSE:AA).

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Published by Pamela Garcia

Pamela Garcia is a keen follower of U.S. stock market

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