This week in Canadian markets is ending with investor interest in commodities at an all-time high.
Their enthusiasm is well-warranted, given Canada’s resource-heavy economy, how steeply global indices have tumbled over the past month, and how slowly global industry is returning to full strength as the pandemic recedes into herd immunity. While factories are coming back online, consumers are growing comfortable with socialization and spending at an even greater pace, which has elevated demand for natural resources to historic levels.
Russia’s war in Ukraine is having a similarly constraining effect on supply, especially after the U.S. and the U.K. banned the import of Russian oil, and Ukraine banned the export of staple commodities to ensure it can feed its population.
Over the past two years alone, copper has spiked from US$2.20 to US$4.60, silver has risen from US$12.40 to US$26, and wheat has gone from US$177.75 to an astonishing US$366.50.
Oil has also enjoyed a momentous two-year move, with West Texas Intermediate going from US$35 to US$106, and Brent Crude going from US$35 to US$110.
These elevated prices mean that companies that do business in these commodities are flush with cash, paying down debt, investing in future projects and likely enjoying considerable stock appreciation.
Oil producers such as ShaMaran (SNM) and PetroTal (TAL) are prime examples, with their stocks up three and four times, respectively, over the past two years.
Bullish sentiment in the space is clearly alive and well, with a case for it to continue over the short term as ports clear out delayed shipping containers, labour supply ticks up with a rise in inflation, and the effects of Russian sanctions and its growing isolation are felt the world over.
That said, it pays to play devil’s advocate as an investor and consider how an investment thesis could go wrong.
With commodities, the main caveat worth remembering is that they go through cycles of fluctuating supply and demand. It’s incredibly difficult to predict when and why a commodity will find itself in the spotlight, because innovation is by its very nature a source of marvels past generations could have only dreamed of.
Take lithium, which is essential to produce batteries for electric vehicles. The metal spent most of the last five years hovering between US$100 and US$400, until ESG concerns proliferated across the investing community, causing prices to shoot up to just under US$900 in little over a year. Nickel has experienced a surge for the same reason, up 270 per cent since March 2019.
Unsurprisingly, stocks like Lithium Americas and Lithium Chile are trading at outsized multiples.
Similarly, copper was a losing proposition from 2010-2020, taking you from US$3.35 to US$2.80 over the period. Brent Crude moved from US$81 to US$28 over the same timeframe, with considerable volatility in between. And if you invested in the iShares S&P/TSX Capped Energy Index ETF, your return over the past decade would have come to a disappointing -5.93 per cent, and that’s including oil’s recent gains.
Regardless of financial health, if a company’s profits are tied to a commodity, its stock price is likely to track it, which does not bode well for the long-term investor banking on fundamentals resulting in a satisfactory return.
This is why many allocate a small portion of their portfolio to natural resources as a hedge against inflation, knowing full well that they cannot be counted on for returns over an investing lifetime.
On the other hand, short-term theses, which involve cycle timing, could be viable options for the sophisticated and well-researched market participant who sees alpha, as opposed to the average market return, as the key to financial independence.
Whichever option you choose, financial decisions should stem from your goals, knowledge, time horizon and risk tolerance. Just because a certain sector is en vogue and generating fomo to the nth degree does not necessarily mean it’s where you should put your hard-earned dollars to work.
Our top five stories this week span commodities, health care and technology, demonstrating our readers’ respect for diversification in volatile times. Let’s dive in.
Manitou Gold (TSXV:MTU) announces agreement to sell its Dryden Properties
Manitou Gold has agreed to sell its Dryden Properties in northwestern Ontario to Dryden Gold for C$7M.
Dryden Gold is a private company controlled by the founders and management of Ely Gold Royalties.
President and CEO Richard Murphy sat down with Shoran Devi to discuss the transaction.
Manitou Gold (MTU) is down by 15.38 per cent over the past week trading at $0.055 per share as of 11:36 am EST.
CareSpan Health (TSXV:CSPN) launches remote patient monitoring service
CareSpan Health has added remote patient monitoring to its integrated digital care platform.
Over 100 patients have enrolled since launching the service late last month.
The reimbursement for remote patient monitoring is in the range of US$100 to US$115 per patient per month.
CEO Rembert de Villa spoke with Shoran Devi about the news.
CareSpan Health (CSPN) is down by 10.96 per cent over the past week trading at $0.32 per share as of 11:37 am EST.
Alphamin Resources (TSXV:AFM) announces Q4 and FY 2021 results
Alphamin Resources has announced Q4 and FY 2021 results, including record Q4 EBITDA of US$74M.
Contained tin production was 3,114 tons, up 10 per cent from the prior quarter.
Contained tin sales were 3,056 tons, up 13 per cent from the prior quarter.
CEO Maritz Smith spoke with Shoran Devi about the company’s performance.
Alphamin Resources (AFM) is up by 2.65 per cent over the past week trading at $1.16 per share as of 11:24 am EST.
Neptune Wellness (TSX:NEPT) launches Forest Remedies supplements in Sprouts Farmers Market stores across the U.S.
Neptune’s Forest Remedies Multi-Omega supplements contain a blend of plant-based omega 3, 6 and 9 fatty acids to support heart, brain, skin and joint health.
The placement marks a noteworthy milestone in the company’s journey toward full integration.
President and CEO Michael Cammarata sat down with Shoran Devi to discuss the product launch.
Neptune Wellness (NEPT) is down by 13.64 per cent over the past week trading at $0.38 per share as of 11:05 am EST.
Psyched Wellness (CSE:PSYC) proprietary extract AME-1 receives GRAS certification
An independent panel has concluded that Psyched Wellness’ proprietary AME-1 extract is Generally Recognized As Safe (GRAS).
AME-1 is an extract from the Amanita Muscaria mushroom, which offers a multitude of medicinal properties.
GRAS certification allows Psyched to legally sell its AME-1 products in the United States.
COO David Shisel joined Shoran Devi to discuss the achievement.
Psyched Wellness (PSYC) is up by 16.67 per cent over the past week trading at $0.10 per share as of 10:54 am EST.
We’ll see you next Friday afternoon for a look back at the week’s trending stories on The Market Herald Canada.
