Inflation. War. Skyrocketing commodity prices. That’s the current context for investors looking to navigate the world right now. Crude oil has doubled since November. Wheat, soy, and corn have made similar moves. Gold recently reached new all-time highs.
That picture has been driven by soaring demand growth as the pandemic comes to an end. But it has been massively augmented by Russia’s brutal invasion of Ukraine, which has not only upset the picture of a post-cold-war geopolitical paradigm, but has spurred supply risks for major commodities due to record sanctions and disrupted trade relationships given Russia’s powerful position as a major producer of raw goods to the world.
For investors, the momentum trade is clear: long inflation plays, long commodity producers, short bonds.
However, within this larger context, the past week has seen commodity stocks suddenly pull back sharply into the teeth of the rising trend. Market participants looking for an opportunity to put dry powder to work may finally have their chance.
With that in mind, we take a look below at some of the most interesting commodity stocks in the market right now.
Cleveland-Cliffs Inc. (NYSE:CLF) is a flat-rolled steel producer, which supplies iron ore pellets to the North American steel industry.
The company engages in the production of metallics and coke, iron making, steelmaking, rolling and finishing, and downstream tubular components, stamping, and tooling.
Cleveland-Cliffs Inc. (NYSE:CLF) recently announced that it will indefinitely idle its Indiana Harbor #4 blast furnace (IH#4). This action is a result of the successful implementation of operational improvements, particularly the addition of significant amounts of HBI to the burden of blast furnaces and the maximization of scrap usage in BOFs. The employees allocated to IH#4 will be reassigned to other positions within Indiana Harbor Works, as the number of available job openings at the Indiana Harbor complex exceeds the amount of jobs associated with IH#4. The Company will continue normal operations of the entire Indiana Harbor Works, including its two steel shops, the hot strip mill and all its finishing facilities, as well as the nearby Riverdale Works. With both Indiana Harbor blast furnaces #3 and #4 now indefinitely idled, going forward, all downstream operations including Riverdale Works will be supplied exclusively by the Company’s flagship high-productivity IH#7 blast furnace.
Lourenco Goncalves, Cliffs’ Chairman, President and Chief Executive Officer said, “Our strategy of increasing productivity at our ironmaking and steelmaking facilities through the use of both in-house produced HBI and additional scrap has allowed us to reduce coke rate and consequently reduce CO2 emissions, as well as to stretch hot metal utilization and still be able to produce similar amounts of crude steel with fewer blast furnaces. Said another way, by concentrating the operation and maximizing productivity at IH#7 we are improving our carbon footprint and, at the same time, lowering our cost structure for the same level of steel production and shipments. Most importantly, as we have enough job openings on site for all impacted employees, we are now able to fill several available job openings at Indiana Harbor Works with the current workforce of IH#4.”
The chart shows 32% added to share values of the stock over the past month of action. Furthermore, the company has benefitted from a jump in recent trading volume to the tune of 20% beyond its prior sustained average level.
Cleveland-Cliffs Inc. (NYSE:CLF) has a significant war chest ($48M) of cash on the books, which must be weighed relative to about $3.6B in total current liabilities. One should also note that debt has been growing over recent quarters. CLF is pulling in trailing 12-month revenues of $20.4B. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 145.6%.
Viking Energy Group Inc. (OTC US:VKIN) is a small-cap oil and gas play. It’s an OTC penny stock. However, VKIN has proven oil and gas assets valued at over $96 million located in North America in Kansas, Missouri, Texas, Louisiana, and Mississippi. Shares of the stock are up about 60% over the past month and now trade above the stock’s major moving averages. However, it could have a lot further to go given that it reached three times its current price last fall.
VKIN isn’t just confined to the oil production space, however. The company has been expanding into other energy themes, including carbon capture, storage, and electricity grid operations through strategic activity, including through its majority owner, Camber Energy Inc (NYSE American:CEI).
Viking Energy Group Inc. (OTC US:VKIN) recently announced that it has acquired a 51% interest in entities that own the intellectual property rights to fully developed, patent pending, ready-for-market proprietary Electric Transmission and Distribution Open Conductor Detection Systems designed to detect a break in a transmission line, distribution line, or coupling failure, and to immediately terminate the power to the line before it reaches the ground. The company noted in its communications that the systems are designed to detect a break in a transmission line, distribution line, or coupling failure, and to immediately terminate the power to the line before it reaches the ground.
The technology apparently stands to dramatically increase public safety and reduce the risk of causing an incendiary event, and is designed to be integral component within a much-needed, worldwide grid hardening and stability initiative by electric utilities to improve resiliency and reliability of existing infrastructure.
VKIN President and Chief Executive Officer James A. Doris commented, “This technology is extremely important. It truly is difficult to put a monetary value on a solution that can sense a broken power line and cut the electricity flowing through the line before the wire hits the ground. Arcing and sparking energized power lines are hazardous, and difficult to detect using traditional concepts. Unfortunately, people in places like California, Western Canada, Australia, and other parts of the world are fully aware of what can happen when a downed, energized power line makes contact with the ground. The damage caused by these wildfires has been catastrophic. We have already begun discussions with major utilities in California and global equipment manufacturers for deployment. Our solution can be quickly and cost-effectively deployed in high-risk areas first, then utilized more broadly by all utility companies to help reach their grid hardening goals.”
Viking Energy Group Inc. (OTC US:VKIN) is an interesting more speculative play in the commodity space largely because the price of its reserves has taken off over the past three months – along with most other stocks in the same space with real production and significant proven reserves – but shares of VKIN are actually flat over that same period, suggesting retail market participants have yet to find the stock and take it higher. For those looking for a high-beta play in the commodity space that hasn’t already been pushed higher by the crowd, VKIN could be an interesting prospect.
Archer Daniels Midland Co. (NYSE:ADM) engages in the production of oilseeds, corn, wheat, cocoa, and other agricultural commodities. It operates through its Ag Services and Oilseeds, Carbohydrate Solutions, Nutrition, Other, and Corporate segments.
The Ag Services and Oilseeds segment includes activities related to the origination, merchandising, crushing, and further processing of oilseeds, such as soybeans, and soft seeds, such as cottonseed, sunflower seed, canola, rapeseed, and flaxseed, into vegetable oils and protein meals. The Carbohydrate Solutions segment consists of corn and wheat wet and dry milling and other activities. The Nutrition segment serves various end markets including food, beverages, nutritional supplements, and feed and premix for livestock, aquaculture, and pet food. The Corporate segment represents results of early-stage start-up companies within ADM Ventures.
Archer Daniels Midland Co. (NYSE:ADM) recently announced the successful pricing of its first sustainable bond, which will support initiatives to advance the company’s goals across the environmental, social and governance (“ESG”) spectrum. ADM agreed to issue $750 million in aggregate principal amount of 2.900% notes due 2032. The offering is expected to close on February 28, 2022, subject to the satisfaction of customary closing conditions.
“Sustainability underlines our purpose and powers our strategy,” said ADM Chairman and CEO Juan Luciano. “Consumers are demanding responsibly-produced products, and ADM is meeting those needs, from our new Scope 3 goal, to our commitment to a deforestation-free supply chain, to our growing array of plant-based replacements for petroleum-derived products, to our leadership role in decarbonizing food and agriculture. This work is a key driver of our strategy, and more: It’s a global imperative, and today’s bond offering is another demonstration of how our unmatched capabilities are scaling positive impact around the globe.”
Even in light of this news, ADM hasn’t really done much of anything over the past week, with shares logging no net movement over that period.
Archer Daniels Midland Co. (NYSE:ADM) managed to rope in revenues totaling $23.1B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 27.7%, 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 ($943M against $21.9B, respectively).
Other key commodity stocks include United States Steel Corp. (NYSE:X), Freeport-McMoRan Inc. (NYSE:FCX), Cameco Corp. (NYSE:CCJ), BHP Group Ltd. ADR (NYSE:BHP), and Alcoa Corp. (NYSE:AA).
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