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Why Raw Goods Stocks Have an Edge Ahead (TECK, GRPE, VKIN, WY)

Some years ago, the analyst Dennis Gartman took a strong stand in favor of stocks that make stuff “that would hurt if dropped on your foot.”

This was in early 2008.

That’s an ominous idea – it sounds a bit like a bullish thesis cast in early 1929. But it’s also a view that has worked well during periods with much better forward outcome distributions. And, in any case, Gartman turned out to be dead right for his time – his basket of stocks crushed over the coming 60-90 days as commodities boomed higher.

At present, it would seem we are seeing a similar scenario, as inflation expectations ratchet higher, and we confront a monetarist dilemma fueled by policy-makers’ desire to maintain easy policy to “even out” the cycle data during a period where reality is as distorted as ever on a socioeconomic basis.

This desire to hold the policy door open to avoid further exacerbating these factors is checkmating the system to drive commodity prices higher. That can be played through ETFs like the Invesco DB Commodity Index Tracking Fund (NYSEARCA: DBC), VanEck Vectors Gold Miners Etf (NYSEARCA: GDX), and Energy Select Sector SPDR Fund (NYSEARCA: XLE).

But it can also possibly be better taken advantage of through individual stocks like Teck Resources Ltd (NYSE: TECK), Green Plains Inc (NASDAQ: GPRE), Viking Energy Group Inc (OTC US: VKIN), and Weyerhaeuser Co (NYSE: WY).

 

Teck Resources Limited (NYSE: TECK) trumpets itself as one of Canada’s leading mining companies

Teck is committed to responsible mining and mineral development with major business units focused on copper, zinc, and steelmaking coal, as well as investments in energy assets. Green metals and high-quality steelmaking coal are required for the transition to a low-carbon world.

Teck Resources Limited (NYSE: TECK) recently announced a $500,000 contribution to UNICEF Canada in support of life saving COVID-19 response efforts in India.

“Our donation to UNICEF Canada will go towards the immediate life-saving response as well as long-term hospital infrastructure in the most impacted areas of India,” said Don Lindsay, President and CEO, Teck. “COVID-19 is taking a terrible toll on the people of India and our hearts go out to them. This funding will go towards urgent healthcare requirements and help support those most in need during this incredibly challenging time.”

The context for this announcement is a bit of a bid, with shares acting well over the past five days, up about 7% in that timeframe. Shares of the stock have powered higher over the past month, rallying roughly 17% in that time on strong overall action.

Teck Resources Limited (NYSE: TECK) generated sales of $2.5B, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of -0.5% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($369M against $3.5B, respectively).

 

Green Plains Inc (NASDAQ: GPRE) is another interesting name in the raw goods space. The company bills itself as a leading biorefining company focused on the development and utilization of fermentation, agricultural and biological technologies in the processing of annually renewable crops into sustainable value-added ingredients. This includes the production of cleaner low carbon biofuels, renewable feedstocks for advanced biofuels and high purity alcohols for use in cleaners and disinfectants.

Green Plains is an innovative producer of Ultra-High Protein and novel ingredients for animal and aquaculture diets to help satisfy a growing global appetite for sustainable protein.

Green Plains Inc (NASDAQ: GPRE) recently announced financial results for the first quarter of 2021. Net loss attributable to the company was $6.5 million, or $(0.17) per diluted share inclusive of a gain on the sale of certain assets of $36.9 million and a $22.1 million charge related to extinguishment of convertible notes compared with a net loss of $16.4 million, or $(0.47) per diluted share, for the same period in 2020. Revenues were $553.6 million for the first quarter of 2021 compared with $632.9 million for the same period last year.

“Our first quarter was transformative to both our balance sheet and our technology platform. Additionally, our 1.0 platform performed well, as our risk management and hedging programs were beneficial to the quarter,” said Todd Becker, president and chief executive officer. “Fully funding our Total Transformation Plan to deploy Fluid Quip’s protein technology was a critical step in building the biorefinery platform of the future. The milestones achieved during the quarter have moved us along the path to achieving our 2024 financial goals, including partnering with BlackRock and Ospraie Management in the acquisition of Fluid Quip Technologies to transform Green Plains into a global leading ag tech company focused on value added, low carbon novel agricultural ingredients.”

If you’re long this stock, then you’re liking how the stock has responded to the announcement. GPRE shares have been moving higher over the past week overall, pushing about 11% to the upside on above average trading volume.

Green Plains Inc (NASDAQ: GPRE) managed to rope in revenues totaling $609.6M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 5.4%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($654.4M against $421.5M).

 

Viking Energy Group Inc (OTCMKTS: VKIN) bills itself as an independent exploration and production company focused on acquiring, enhancing, and developing oil and natural gas properties in the Gulf Coast and Mid-Continent regions. It has assets in Texas, Louisiana, Mississippi, and Kansas.

It is also currently the majority-owned subsidiary of Camber Energy Inc (NYSEAMERICAN:CEI), and a merger agreement is in the works that could increase the value of both companies through geographic and operational synergies.

Viking Energy Group Inc (OTCMKTS: VKIN) recently posted sturdy results for Q1, including revenues of nearly $10.5 million and an adjusted EBITDA of $4.63 million.

James Doris, President and Chief Executive Officer of both Camber and Viking, commented, “We are pleased with Viking’s Q1 results, especially following the unprecedented conditions experienced in 2020. We are extremely encouraged with the foundation we have established, and are intensely focused on pursuing growth opportunities.”

Importantly, the company was able to drive nearly 20% sequential quarterly topline growth ahead of any clear sense of full economic “reopening”, when analysts expect energy demand to grow significantly.

VKIN shares have pulled back to test potentially important support in the $0.50/share area, which was last tested in 2015 and early 2016, leading to significant upside over subsequent quarters.

 

Weyerhaeuser Company (NYSE: WY) owns or controls approximately 11 million acres of timberlands in the U.S. and manages additional timberlands under long-term licenses in Canada.

The company manages these timberlands on a sustainable basis in compliance with internationally recognized forestry standards. The company is also one of the largest manufacturers of wood products in America. It is a real estate investment trust that generated $7.5 billion in net sales and employed approximately 9,400 people who serve customers worldwide.

Weyerhaeuser Company (NYSE: WY) recently announced the completion of its acquisition of 69,200 acres of high-quality Alabama timberlands from Soterra, a subsidiary of Greif, Inc., for approximately $149 million earlier this week. Separately, the company announced an agreement to sell 145,000 acres of timberlands in the North Cascades region of Washington to Hampton Resources for $266 million. The company expects to recognize a gain on the sale and anticipates no tax liability in conjunction with this transaction.

“These transactions exemplify our ongoing effort to strategically optimize and upgrade our timberland portfolio,” said Devin W. Stockfish, president and chief executive officer. “Our Alabama acquisition will grow our near-term and long-term cash flow, and the Washington sale completes our targeted large-scale divestitures of non-strategic acreage in the West. We will continue to seek prudent opportunities to enhance our portfolio with high-quality, well-managed timberlands that will drive long-term value for shareholders.”

If you’re long this stock, then you’re liking how the stock has responded to the announcement. WY shares have been moving higher over the past week overall, pushing about 2% to the upside on above average trading volume. WY shares have been relatively flat over the past month of action, with very little net movement during that period.

Weyerhaeuser Company (NYSE: WY) managed to rope in revenues totaling $2.5B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 45%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($1B against $0).

 

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