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Weekly rollup | July 11-17 2022

Stocks Mentioned: BW LPG (BWLPG), Hannon Armstrong Sustainable Infrastructure Capital Inc (HASI), Adventus Mining (ADZN.V), StealthGas (GASS), MPC Container Ships (MPCC.OL), Palladium Futures (PA)

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July 11 2022

Natty looking strong, up 5.1% to 6.273 today, which is 17.8% above the June 30 bottom.

BW LPG (BWLPG) opened only modestly lower. As long as nat gas is holding up well, I'm comfortable holding this position.

July 12 2022

Buy Palladium September futures at 2032 (last traded price) with a stop at 1960 (3.5% risk). If this is just a gap fill, PA should bounce from here.

July 13 2022

While Hannon Armstrong Sustainable Infrastructure Capital Inc (HASI) may make you short of breath just saying the name out loud, the stock itself is probably a long-term short. Based on a report released by prominent short seller Muddy Waters yesterday, the stock declined 19.05% to close at $29.41 on volume of 9.89 million shares. That's 11x the daily average volume of 900k shares. After bottoming out at $28.71 in the last half hour of trading, the stock recovered somewhat and is up pre-open today to $29.94.

Those who sold short yesterday need to cover. According to Yahoo Finance data, 98.14% of the float (95.38% of total shares) is held by institutions. Are they going to be natural sellers one day after a short seller report comes out? Not likely. My guess is that short interest is now ~22% of float, which implies the next move is a short covering rally. Watch for strength at the open today. The higher the opening price, the more the likelihood of a short covering rally getting underway. If the stock opens lower ($29 or below), chances are it continues lower and the short covering rally won't happen today. I'm watching and waiting for the setup.

Stopped out of the PA trade at 1960.

Sell Adventus Mining (ADZN.V)

Since our entry, the stock is down a third. I wrote that "Value plays don't have a great chance of success, but when they do succeed, the gains tend to be high to make up for the risk. I think the best time to buy exploration stocks is when there's no liquidity, sentiment is non-existent because nobody cares, and the valuation is highly compelling."

Reasons for my sell recommendation:

  1. Protestors in Ecuador demand cheaper prices at the pump, but want to curtail mining and oil exploration in the country. This anti-mining sentiment is a wave washing over the whole of LatAm. Ecuador used to be an exception, but no longer. My risk premium for Ecuador went up and the 8% discount rate the company provided in its Feasibility Study no longer suffices.

  2. The strip ratio (ratio of waste to ore that needs to be moved) in this project was always a cause of concern. A strip ratio of 8.6 is way too high in normal times, but can be made to work. The company plans to use regular 40-ton haul trucks for mining. Forget the diesel price, just securing diesel is going to be a problem when the government is subsidizing it and promoting consumption. Can they switch to using a conveyor to overcome this? Perhaps. But electricity supply depends on the construction of a 7.1 km 69kV power line. Until that's a done deal, I wouldn't bank on it.

  3. FS NPV no longer holds good. The base case in the FS assumed $1700/oz gold, $23/oz silver, $1.2/lb zinc and $3.5 copper. Current market price: $1725 gold, $19 silver, $1.38 zinc and $3.26 copper. With copper accounting for 49% of base case revenues, the NPV estimate would be revised lower using today's prices.

My original target price was C$1.13, implying 88% upside from the 60 cent entry. Working backwards, a 1:3 risk:reward implies a stop loss at 42 cents. My target price would be lower now, which makes the risk/reward on this trade worse.

With ADZN trading at 40 cents, it's time to pull the plug for a loss of 33.33%.

"It is very important to watch the position of the different groups of stocks. To be a success you must keep up with the times and follow the leaders. The way to do this is to keep up a monthly high and low chart on several stocks of each different group; also keep a yearly chart of the different stocks. The further back you have records the better you will be able to judge the position of a group.

Many years ago, Traction and Railroad stocks were the leaders. Then followed the Copper boom. After that the Motors, Rubbers and Oil stocks. Of course, every few years some kind of a boom develops in different mining stocks, but they are a class of stocks which you have to be very careful of, as they are probably the most uncertain of all.

During the past few years the man who stuck to Rails has made very little money because the opportunities have not been there. The Motors, Rubbers and Oils have been the stocks which have made wide fluctuations and offered unusual opportunities for trading. The day of Railroads is passing and the big fortunes will not be made in them in future. Competition is getting keener every day in the Motor industry and it will eventually narrow down to a good return on invested money, but will not produce enormous profits. For this reason you must be wide awake and in future look to the new things which will offer unusual opportunities and attract speculators, causing wide fluctuations.

In future you must watch for the new industries that develop and get into their stocks, just the same as the people who let Rails alone and got into motors and made a fortune. Those who sold out Coppers in 1916 and played the Oils in 1918 and 1919 made fortunes. In my judgment, the Aeroplane and Radio stocks will be the ones in the next few years that will make fortunes as great as any that have been made in Oils or Motors. The Chemical stocks also offer great opportunities in future, as this country has made great progress along chemical lines since the war and the business is growing on an enormous scale.

A wide range is what the trader requires in order to make big profits. As long as stocks move between 20 to 100 points each year, you certainly will be able to make some money on the long or short side, probably both. But when they narrow down to 5 and 10 points in a year, your chances are very much against big profits.

In 1916 Copper stocks reached the highest level that they had made for many years. But in 1919 when Oils and Industrial stocks reached the highest level in their history, Coppers only had a moderate rally. After that they worked lower each year until 1920 and 1921. By keeping a chart of this group and some of the leading issues, you would be able to see that in 1919 the Copper stocks had been heavily distributed because they failed to rally to the 1916 level. Therefore, they were good short sales for a long decline." - The Truth of the Stock Tape by William D. Gann, 1923.

Sector rotation was important a century ago and remains so today.

The e-book, in case anyone's interested.

Download PDF • 2.64MB

Gotta love natty. Sticking with my BWLPG, LPG and GASS positions.

Need to see StealthGas (GASS) start moving again on heavy volume. The company has a market cap of $95.9 million, assets of $810.4 million and equity of $483.3 million. The assets consist of 33 LPG carriers, 1 newbuild and 7 vessels under JV. Price to book ratio: 0.2x. Company returned to profitability in Q1 with EPS of 20 cents. That's an annualized PE of 3.14x. Can get cheaper still if TCE rates for LPG carriers head lower, but given the explosive moves seen in the stock in June, I'm willing to hold until I can find out what's driving the volatility.

Holding off on HASI. Could go either way in the next couple of days.

July 14 2022

July 15 2022

The Bank of Canada (BOC) surprised the markets yesterday by hiking their internal rate a full 1%, or 100 Basis Points. The BOC said that even with this front loaded rate hike that they still believe more rate hikes will be needed. The Canadian internal rate is now 2.5%.

Time to get back into MPCC.OL. The 1 year support at approx. NOK 18 held and the stock has made a V-shaped recovery back to NOK 22.

The London-based company said demand from U.S. consumers remains strong, but labour shortages affecting East Coast production meant it had to ramp up U.K. output and ship drinks across the Atlantic at a time of elevated sea freight rates.

Inventory shortages in the United States continue to impact sales, Fevertree said, as it also warned of an expected double-digit increase in glass prices in the second half of the year amid restricted supply.

July 16 2022

Positioning as of this week's close. Gross exposure - 175%, net long - 150%. Main allocation change is the gold explorers, where I have cut down drastically following the terrible price action in gold and silver.

July 17 2022

With Nord Stream-1 still in planned maintenance, European spot prices continue to linger around €180 per MWh, nine times higher than year-ago levels.

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