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Weekly rollup | Aug 08-14 2022

Stocks Mentioned: Bunge Limited (BG), Gladstone Land (LAND), Farmland Partners (FPI), Hannon Armstrong Sustainable Infrastructure Capital Inc (HASI), Vertex Energy (VTNR), West Fraser Timber (WFG), Lundin Gold (LUG.TO), Pretivm Resources (PVG), DHT Holdings (DHT), Ardmore Shipping Corporation (ASC), Microstrategy (MSTR), Skeena (SKE), Alexco (AXU), Core Scientific (CORZ), Textainer Group Holdings (TGH), Triton (TRTN), S&P E-Mini Futures (MES), ProShares Short Bitcoin Strategy ETF (BITI)

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August 08 2022

Buy Bunge Limited (BG)

Investment case is simple. Bunge is a food processor which benefits from the soybean crush, is involved in the grains supply chain from procurement to milling to distribution, production of biofuels, edible oil, and plant protein isolates. The company expects to report $12 EPS for 2022 and has provided forward guidance out to 2026. According to guidance, their baseline EPS is $8.5, with increased earnings from better performance and future share repurchases expected to take that up to $11. The company went public in 2001 and has been the subject of takeover offers by both Glencore and Archer Daniels Midland - a strong vote of confidence in the strength and resilience of the business.

I am adding this to my long-term stock portfolio (>1 year timeframe). It is very difficult to get exposure to the agriculture sector except via futures. I've considered Gladstone Land (LAND) and Farmland Partners (FPI) but they are more of a US agri real estate play than an actual agriculture sector play. BG is a global agribusiness player, which makes it the perfect stock to gain broad exposure to all things agriculture.

Initiating buy recommendation at $96.6.

Hannon Armstrong Sustainable Infrastructure Capital Inc (HASI) was a missed opportunity! The gap higher on 7/28 was the entry signal. I was enjoying the waterfalls view from my room and not looking at my screen, so I missed it. No regrets, there will be other trades. This was my first real vacation since Sri Lanka in February so I'm glad I took the time to de-stress ahead of the Q2 earnings call marathon. A typical earnings season for me consists of ~100 earnings call transcripts across sectors, which represents the most promising companies among the 400+ on my watchlist. That's my process for generating trade ideas, since I'm fundamentals driven in my approach.

August 10 2022

I have been back and forth on Twitter with newsletter writer Calvin Froedge, talking about containerships vs tankers. He has been recommending Vertex Energy (VTNR) for a while. The stock dived 45% on reporting earnings, or lack thereof. Happens to the best of us, no biggie. The losses were due to a derivatives blow up, so it was inside info closely held until the earnings release.

Then, something interesting happened.

He put up his returns, showing he was up 50%+ ytd on his personal account. I'm bringing this up because everyone who follows FinTwit or newsletter writers need to understand this - what people say and what people actually do with their money are two different things. I've worked with someone who has recommended stocks to newsletter subscribers and re-iterated buys on losing positions. He has made 100+ option trade recommendations and touted the 500%+ gains on the trades that worked. And the funny thing is, the guy never even had a brokerage account! He made his money from newsletter subscriptions. Once subscribers lost money and figured it out, they were replaced by a new crop of subscribers lured in by the marketing machine.

Beware of the trade ideas you see put out by FinTwit celebrities. Chances are, they don't eat their own cooking.

West Fraser Timber (WFG) announced today it is permanently curtailing approximately 170 million board feet of combined production at its Fraser Lake and Williams Lake sawmills and approximately 85 million square feet of plywood production at its Quesnel Plywood mill. Access to available timber is an increasing challenge in British Columbia and ongoing transportation constraints have impaired the Company's ability to reliably access markets. These capacity reductions are necessary to better align West Fraser's operating capacity with available timber and transport availability.

The company has capacity in Alberta and US South, so the hit in BC isn't major. The curtailment affects 2.4% of its lumber production capacity of 7 billion board feet and 10% of its plywood production capacity of 850 million sqft. I see no reason to panic.

According to IMF forecasts, the costs of living for the poorest of UK households have gone up by more than 16% this year, whilst in Hungary (the least suffering of the EU pack) they rose by 3%.

Lundin Gold (LUG.TO) increased its 2022 gold production guidance from 405,000 to 445,000 oz to between 430,000 and 460,000 oz and decreased its AISC guidance from $860 to $930 per oz sold to between $820 and $870 per oz sold. That's a gross margin of 53%, which is roughly $425 million in mine operating earnings. H1 2022 net income decreased 42% as compared to last year, even though production and revenue increased. This is not a value stock and should not be considered cheap, or even a buy based on fundamentals. But companies are trying to get bigger in order to compete for a higher allocation in the GDX. So profitable or not, value or not, someone is going to make an offer for LUG. The added ounces and size is just too good a prize to pass up. We saw this last year with Pretivm Resources (PVG). Just a matter of waiting.

"Drewry sees a record liner profit this year, totalling $270bn, equivalent to the GDP of Finland. Drewry then sees a dramatic drop off in profits next year, nearly halving to $150bn."

- Splash news.

ZIM reports earnings on 8/17. It's my most awaited earnings release for this quarter.

Today is a good day to cut risk. Stocks, commodities, crude oil, gold, yen, and emerging markets are up for the day. VIX under 20, down 9.3%. Every sector is in the green except bonds, utilities and dry bulk rates. ETH looking particularly bullish, up 9% and outperforming bitcoin (+4%) by a wide margin. If we continue moving higher from here, there will be plenty of opportunities to add leverage. So I'm taking down long exposure today and awaiting events.

August 11 2022

For all the hype about DHT Holdings (DHT) Q2 results, I must say the numbers were disappointing. Sure, their VLCCs averaged TCE rates of $24,300 per day, which is very impressive. Revenue increased 30% sequentially and 51% year-on-year. But net income was a mere $10 million or 6 cents in EPS. Operating cash flow was $26.3 million, down from $33.9 million in Q2 2021, which was a challenging period for tankers. Of the 6 cents in EPS, the company intends to dividend out 4 cents. So far in Q3, 68% of available vessel days were fixed at a TCE of $23,600 per day.

Nothing in these results is fundamentally bullish. The stock is fairly valued for current market conditions. Holding on implies an expectation that the market overall does better from here. I stopped being bullish product tankers when I sold ASC in May since the risk/reward was no longer favorable. I'd say the same for oil tankers today and am closing the DHT position. Technically, the stock appears to be in an uptrend. The time to chase the breakout was 3 weeks ago, not now. I don't like the setup, or the fundamentals, or the valuation. It's not a buy, it could be a Hold if I wanted to chase a blow-off top. I don't, so I'm out.

Our entry was at $6.56 on 6/1/2021 and we're up roughly 14% so far. Today's open will mark the official exit price.

Microstrategy (MSTR) Q2 2022 earnings call:

"Since August 11, 2020, our stock has outperformed Bitcoin as well as every major asset class, along with every major big tech stock. Now why do we choose August 11, 2020? That was the day we announced our Bitcoin strategy, and we've coupled it with the Dutch auction where we offered to buy back $250 million of our shares. So we embarked upon this strategy on August 11.

When we looked back at where did MicroStrategy close the day before? It's up 123% since we embarked on that strategy. Where is Bitcoin gone? Bitcoin is up 94% since we announced our Bitcoin strategy. So MicroStrategy has actually outperformed it quite. We've captured more than 100% of the alpha of Bitcoin. From a standing start, the S&P index is up 23% in that same time frame. NASDAQ is up 13%. So as you can see, we've outperformed by a factor of 10 NASDAQ stocks in general. We've outperformed the entire S&P by a factor of 5.

The option that we had when we chose Bitcoin was gold. We said digital gold or gold. Gold is down 13% since that fateful day. So Bitcoin plus 94%, gold down minus 13%; MicroStrategy up 123%. We could have held our $500 million plus of treasury assets and bonds. And the conventional view is to hold bonds. Well, we could have held short-dated bonds that generated 0% interest or we could have bought midrange bonds.

And if we look at the PIMCO BOND Index, B-O-N-D, that index is down 14% since August 11, 2020. And of course, for those who believe in silver instead of gold, silver is down 29%. So as you can see, when we're choosing a treasury reserve asset, Bitcoin outperformed all other reasonable treasury reserve assets.

Now we actually considered MicroStrategy performance and Bitcoin's performance against big tech, too. For those of you who know me, you know I wrote the mobile wave and I've been a big advocate of big tech digital monopolies like Google, Apple, Amazon, Facebook. You can see Google in this time period is up 54%. MicroStrategy more than doubled it. Apple, up 43%; Microsoft, up 34%. So we managed to beat those three digital monopolies.

But the other interesting thing is that half of big tech is down in that same period. Amazon has lost 14% of its value, Meta Group or Facebook down 39%, and Netflix down 53%. So if we look at all these numbers, and if you recall, when we announced our strategy, we said we were considering all possible treasury reserve options. We managed to choose the single one, bitcoin that's plus 94% to beat everything. And MicroStrategy executed on that. We basically started by buying $250 million of bitcoin. We executed on that, so as to not just capture a fraction of the Bitcoin return, but actually more than 100% of the bitcoin return for our shareholders in that time period."

No arguing with the numbers, Saylor achieved something massive here. And he started the wave of public companies investing in bitcoin as a treasury asset. My beef with MSTR is that Saylor holds 72% of the total voting power since his class B shares have ten votes per share vs the class A shares traded on the exchange which have one vote per share. I like him as a visionary, I don't like him as a leveraged trader betting it all on bitcoin with no regard for tamping down volatility.

Skeena's (SKE) latest corporation presentation says the Eskay Creek FS will be released during Fall 2022. I've followed this company since 2019 (see my first write-up) and I like management and the assets, so I'm willing to let it ride until they release the FS.

August 12 2022

Alexco (AXU) reported a Q2 net loss of C$95 million, which is about 84% of its market cap. Luckily for Alexco bagholders, the Keno Hill mine is now Hecla's problem.

Core Scientific (CORZ) reported a Q2 net loss of $861.7 million, or 78% of its market cap. Although the share price has rallied since our exit, I wouldn't be a buyer until the fundamentals improve for bitcoin mining.

Sell Textainer Group Holdings (TGH)

There's nothing wrong with the company, but I want to rationalize the number of open trades and I'd rather have just Triton (TRTN) for exposure to the container leasing segment than both Triton and TGH. I'm going with TRTN because it is the segment leader. I'm also actively cutting risk, which means cutting trades I believe in but which no longer make the cut allocation-wise.

Based on 4/11 entry at $33.4, exit at $33.96 and including 25 cents in dividends, we are up 2.43% on this position.

Short MES with a stop at 4306.5 and short bitcoin via BITI (no stop). I suspect this rally is about to fizzle so I'm adding some more short exposure ahead of today's close.

August 13 2022

The popular opinion seems to be that we're at the end of a bear market rally, that stocks are merely working off extremely oversold conditions and we go lower again from here. That goes against the price action, since the primary trend is up on the daily chart and a higher low would confirm the same on the weekly. Zooming out to the monthly chart, this does look like a bear market rally but the chart is still indecisive. If that's your timeframe, which works for a retirement account, then sure. But for a trader, the monthly is just for perspective. My current thinking is that last week was a short covering rally, the next week will be a down move from long liquidation, and once that ends the bias is higher. My short on ES and bitcoin is to capture a short but sharp correction, my bias is still long. That's why I haven't cut any trade except DHT and TGH. I still have 20 open trades plus yesterday's short on ES and BTC. And I'm short the ES only because I think the 4180 level was taken out too easily and there will be a re-test. The BTC short is for alpha.

Forget opinions, just look at the trend. The price action is the truth. Not fundamentals, not inside info on hedge fund positioning, not sentiment, nor even TA (to an extent). As a discretionary trader, I have to have a bias. But I can't let that bias interfere with what the charts are showing. If I go counter to a trend, I'm going counter to a trend and I know it. If I buy a value stock, I'm buying a piece of garbage hoping it'll smell less bad in some time and I know it. If I'm not covering a short that went against me (like STNG), I made a mistake and I know it. Getting the broad trend right pays for a lot of mistakes. That's what I'm trying to do - trying to get the broad trend right, but with different trades having different timeframes.

I've made the Track Record sheet public, so feel free to access and share.

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