June 13th, 2022 | 15:45 CEST
Alibaba, Almonty Industries, Shell - Shares with conspicuous strength in the crisis
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"[...] While tungsten has always played an important role in the chip industry, it is now being added to batteries for e-cars. [...]" Lewis Black, CEO, Almonty Industries
Alibaba - Positive signals from Beijing help the share price get off the ground
Since mid-May, Alibaba has gained 55% at its peak, and even the market sell-off has not been able to push the stock down significantly. Where does the strength come from? While the Zero-COVID policy still prevails in China and weighs on the economy, there have been positive signals for Chinese companies since May. Last year, the tech giants struggled with regulations, and these uncertainties punished investors with falling prices. The interest rate cut by the Chinese central bank positively affects growth companies from China. As long as no further damaging regulations come from Beijing, a further climb in the share price seems possible.
This is supported by the favourable valuation of the share. The price/earnings ratio is 30 in the worst case, but depending on the approach, the best case is around 13, which is very favourable for a growth company. In addition, the Chinese market has been completely penetrated by the Company. It is difficult for Western companies to gain a foothold in Asia, as Google has already experienced, whose search engine has a market share of just 8%. For Alibaba, expanding its business to the rest of the world is more feasible, as Chinese manufacturers offer their products at significantly lower prices than their Western competitors. In addition, Alibaba has built quite a few businesses that are just starting to run into the black.
Charlie Munger is likely to be annoyed that he sold around 300,000 shares of Alibaba in April. Although he still holds a lot of shares. Together with Warren Buffet, Munger belongs to the upper circle of value investors. If the fundamentals are right, it is always just a matter of time before the shares take off. The stock is currently trading at USD 109.84, well off its May lows of USD 78.01. In the long run, China will become the world's largest economy, and the Alibaba Group, with its many business segments, will benefit from this.
Almonty Industries - Final steps of financing completed
Since June 7, shares of Almonty Industries have been sought after and gained almost 30% in a few days. What happened? The Company announced a private placement of AUD 2.12 million, which was fully underwritten by Deutsche Rohstoff AG. Deutsche Rohstoff is the third-largest shareholder in Almonty and has shown a good hand in investing in the commodities sector in the past. The commitment is understandable. After all, the Canadian Almonty Industries will be the largest tungsten producer outside China in the foreseeable future and, with the Sangdong mine in South Korea, will account for up to 10% of the world's tungsten supply.
Demand in this sector will continue to rise, partly due to the Ukraine conflict. The defense industry needs hard and corrosion-resistant steel, and to obtain these properties tungsten is necessary. Now that the signs point to rearmament worldwide, demand could increase more than expected. For the development of the Sangdong mine, the final condition for the KfW financing of USD 75.1 million was met in May. To this end, USD 3.3 million was raised from insiders and existing shareholders. Nothing now stands in the way of the financing. A comprehensive study on the Company can be found at researchanalyst.com.
The tungsten price should continue to soar due to rising demand, which is expected to climb between 3-7% per year. The Company is helped by the fact that South Korea has the lowest production costs in the world. The life of the Sangdong mine is estimated at around 90 years. Another plus point is a large molybdenum deposit in the project area, which could be exploited in the future. CEO Lewis Black is the largest shareholder with 19.5% of the Company, followed by Plansee and the aforementioned Deutsche Rohstoff AG. The share is currently quoted at CAD 1.05 and is on the way to breaking out of the sideways phase. If this succeeds, a test at CAD 1.27 is likely. With the start of production, the share will no longer be available at such a low price.
Shell - Perfect market conditions
Since the beginning of the year, the Shell share has gained a good 48%. One of the main reasons for this is the high oil price, which shot up due to the Ukraine crisis. No sooner do we think that the oil price is running out of steam because OPEC is increasing its oil production by 650,000 barrels per day than the EU comes with a partial embargo on Russian oil, and the price climbs back up to over USD 120. In addition, the ESG requirements have made it impossible for large oil multinationals to invest in new oil fields because otherwise, they endanger their climate targets. Thus, a decreasing supply meets an increased demand. A market environment as if painted for Shell.
On July 28, the Group will present its figures for the second quarter. It can be assumed that the oil and gas price will remain at a high level until the end of the quarter. Thus, the coming quarter should bring even better results than the first one, which ended with a USD 9.1 billion profit. The profits will enable the Group to drive forward its transformation into a carbon-neutral company. Since the first quarter, renewable energy has been reported separately for the first time. The figures for the 2nd quarter promise to be exciting.
Are there any risks at present? Absolutely, if you look at inflation and the fear of a recession. Both could lead to people consuming less, which will ultimately be reflected in demand at some point. But as long as the Ukraine crisis continues, supply will remain tight. Analysts see the stock as worth buying. On average, 20 analysts have a target price of around EUR 32. Currently, the value of one share is EUR 27.40 and thus only just above the support at EUR 27.21. Below this is the 50 moving average, at which the price has recently turned upwards three times.
A strong share price in falling markets is always a positive sign for the respective company. One should always pay attention to the fundamental data and future prospects and make one's purchases in a pullback. The government's reins are loosening on Alibaba, which makes the stock look too cheap compared to its peers. Almonty Industries is on track to become the largest tungsten producer in the world outside of China. It is no wonder the stock is showing strength. All obstacles have been cleared out of the way. Shell will earn magnificently as long as oil prices remain high. A look at the renewables in the quarterly reports will provide information on whether the transformation of the Group is progressing.
Conflict of interest
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