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Weekly rollup | May 16-22 2022

Stocks Mentioned: Valero Energy (VLO), Barrick Gold (GOLD), Gold Standard Ventures (GSV), Discovery Silver (DSV), Skeena Resources (SKE), Marathon Gold (MOZ.TO), Adventus Mining (ADZN.V), Dorian LPG (LPG), BW LPG (BWLPG.OL), Victoria Gold (VGCX.TO), Lundin Gold (LUG.TO), Zim Integrated Shipping (ZIM), Breakwave Dry Bulk Shipping ETF (BDRY), Knight-Swift Transportation Holdings Inc (KNX)

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May 16 2022

Sell Barrick Gold (GOLD). I still see tremendous value in the stock and it would be my No. 1 pick when I want to buy gold miners again, but gold itself is struggling so it's time to move to the sidelines and wait out the next move in gold. We are exiting this trade for an approx. 8.2% gain not including dividends. The only remaining allocations to the gold producers are Lundin Gold (top takeover candidate) and Alexco (still contemplating, waiting for a better exit).

Sell Gold Standard Ventures (GSV). I'm lightening up the gold explorers part of the portfolio and researching better picks. This is also a value stock, but like Integra Resources (exited on 2/3 at ~$2 and avoiding a further 50% down move), value stocks can keep falling as companies keep destroying value. Or, in this case, the market just doesn't care for low-grade deposits in an inflationary environment.

From Nov 11, 2021 trade initiation on GSV (entry price: 52 cents):

"Took a small position in Gold Standard Ventures (GSV) today. The company has the second largest land package in the Carlin trend in Nevada (one of the most prolific areas to explore for gold) and its South Railroad project is sufficiently advanced. The company holds about 2.7 million gold ounces and a 2020 pre-feasibility study projects an after-tax NPV of US$505 million and IRR of 66% at $1800 gold. The initial capex is a modest $133 million. At current market cap of $190 million, the stock is attractively valued. Stock has been bottoming since August and broke out this week."

The breakout failed. I like to give the explorers a lot of room, since press releases on drill results or other exploration activities have a more material impact on the stock price than the price of gold itself. And I still like the asset, I still like the company, I still like what they are doing. But this looks like dead money right now, so time to pull the plug. We are exiting at approx. 35.8 cents for a 31% loss. Remaining positions in the gold explorers: Discovery Silver (DSV), Skeena Resources (SKE), Marathon Gold (MOZ.TO), Adventus Mining (ADZN.V).

Stopped out of the Valero (VLO) short at $128.72, for a 7.3% loss. That was fast. I used a trailing stop so although it was set above the 52-week high of $129.27 the trade went in my favor initially and the stop moved lower. Still holding on to my $STNG short.

No change to my fundamental outlook. I still think refining margins have peaked and valuations are out of whack. In hindsight, should I have waited for a move below $115 before getting short? Probably. I was impatient to add some short exposure given I'm net long ~115%. I'll wait for a good entry for the next short attempt.

May 17 2022

According to data from FACTSET, 87% of S&P 500 companies have reported results for Q1 2022. Of these, 79% reported earnings per share (EPS) that were above estimates, which topped the five-year average of 77%. In terms of revenues, 74% of S&P 500 companies that have reported had revenues above estimates. This is above the five-year average of 69%.

If we are entering recession, company earnings and revenues don't show it yet.

Asian LNG prices inched down recently to $23 per mmBtu despite robust European buying to replenish stocks, primarily coming from Chinese demand dropping to new lows amid continuing lockdowns in the country.

Portfolio holdings Dorian LPG (LPG) and BW LPG (BWLPG.OL) holding strong despite lower Chinese demand. At some point, slowing Chinese growth will have an impact on all commodities, maybe during the next recession. For now, I see no cause for altering my bullish view on nat gas and LNG/LPG.

Victoria Gold (VGCX.TO) did away with its regular quarterly earnings call after reporting these disastrous results. Shocking. My confidence in management just went even lower. Weekly chart-wise, it looks to be setting up for a bounce, but fundamentally I'd steer clear. High time they got acquired, but I'd rather bet on Lundin Gold (LUG.TO) getting acquired than on Victoria, especially since LUG reported a stellar Q1 and the mine is actually performing as per the model.

May 18 2022

Of the 200 equity REITs that have reported earning so far this quarter, roughly 85% have beaten consensus cash flow estimates, while nearly 70% of the REITs that provide forward guidance raised their full-year cash flow outlook, according to Hoya Capital. IYR is still trying to find a bottom. I'm interested, but no trade yet, similar to my view on WOOD.

Zim Integrated Shipping (ZIM, MCap: $8.06 billion, Share Price: $67.3 pre-open) reported Q1 results. There's a reason this stock is my single largest holding by a wide margin.

Press release highlights:

  • Generated Highest Ever Quarterly Net Income of $1.7 Billion and Adjusted EBITDA1 of $2.5 Billion; Continued to Deliver Industry Leading Operating Margins

  • Q1 2022 Carried Volume Increased 5% Year Over Year, Significantly Above Industry Average

  • Increased 2022 Full Year Guidance: Expect to Generate Adjusted EBITDA of $7.8-$8.2 Billion and Adjusted EBIT of $6.3-$6.7 Billion

  • Declared Q1 2022 Dividend of $2.85 per Share, Representing Approximately 20% of Quarterly Net Income

ZIM down 7.5% on the above news! Crazy algos. Added to my position.

ZIM PE ratio based on mid-point of guided 2022 earnings is 1.4x! Assuming the company sticks to its stated policy of returning 30-50% of annual net income as dividends, the dividend yield is 28.6%. Fwiw, the company just raised its guidance and for those thinking current freight rates aren't sustainable, the company's average rate per twenty foot container equivalent unit rose 6% sequentially and hit an all-time high. Q1 2022 rates were 286% higher than the rates achieved in 2017, the depths of the bear market where vessel owners were scrapping 10-year old containerships. China's only now starting to lift lockdowns, retailers are feeling the pinch from inflation which means more incentive to stock up before inventory costs rise even further, oil holding strong and record low unemployment signalling no signs of recession yet - all factors that should provide a massive tailwind to global growth in goods transportation. I see ZIM and KNX as absolute bargains today and have bought both.

KNX has guided 2022 EPS of $5.2-$5.4 and trades at a forward (2022) PE of 8.5x at current share price of $45.3.

Target TGT results: Comparable sales grew 3.3 percent, on top of 22.9 percent growth last year.

Walmart WMT results: Walmart U.S. Q1 comparable sales grew 6.0%; 16.0% on a two-year stack. Walmart U.S. eCommerce sales increased 37%.

Inflation squeezing retailer margins? Yes. Demand falling off? Not according to the data. Investors appearing to be selling freight and shipping stocks without realizing that these are the very companies that are getting that additional margin the retailers are losing.

% move lower today in trucking stocks:

  • SAIA -15%

  • ODFL -13%

  • YELL -12%

  • KNX -11%

  • JBHT -10%

May 19 2022

Hedge fund Melvin Capital tells investors it plans to shut down -letter

May 20 2022

Commodity bull markets last a long time -

May 22 2022

Dry bulk shipping is getting very interesting again. The Breakwave Dry Bulk Shipping ETF (BDRY), which tracks the futures, was the best performer last week, and the shipping stocks have been strong.

BDRY NAV chart -

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