Big Short on defense? Long in gold! Caution with Renk, Deutz, and Airbus - Revaluation for Desert Gold imminent

RENK and Deutz – A few more engines and transmissions

Defense fantasy aside, some stocks go through the roof without the topic of armaments significantly impacting the balance sheet figures. Renk is a specialist in armored transmissions and chassis and is even considered a market leader in this field. The Company expects potential orders of around EUR 12 billion over the next six years, including projects for a new US armored personnel carrier and the modernization of the US Abrams main battle tank. Thus, it is quite possible that, with the inclusion of further NATO orders, the defense business could account for a significant share of RENK's total revenue. Whether the doubling of the share price since February is sustainable remains to be seen in the coming weeks.

The situation is different at Deutz AG in Cologne. The Company is known for its robust engine solutions and has gained almost 40% in the past week. Investors' optimistic expectations are based on statements made by the management board regarding future business development. Changes are now to be made to the product mix in order to benefit from planned government investments in the defense and infrastructure sectors. Investors are speculatively jumping on board even though the latest business figures for 2024 and the forecasts for the current period have not been fully convincing.

Desert Gold – Significant resource appreciation expected

Eurozone inflation has now fallen somewhat more than initially expected. In February, consumer prices in the 20-member states rose by only 2.3% year-on-year, although inflation remains above the target 2% mark. The measurement was taken in February before the German government's mega-debt package was even discussed. Gold rallied after the historic economic stimulus package was passed and briefly reached the USD 3,060 mark.

With the price of gold higher, investors are now looking to explorers who have already defined a resource. In Africa, the focus is particularly on the West because countries such as Ghana, Mali, Burkina Faso, and Ivory Coast are already among the 20 largest gold producers. According to data from 2022, Ghana ranked 11th with a production of 90 tons, and Burkina Faso and Mali followed with 70 and 50 tons, respectively, ranking 13th and 18th.

The Canadian explorer Desert Gold Ventures has been focusing on the Senegal-Mali Shear Zone (SMSZ) for several years. Here, 1.1 million ounces of gold have already been identified near surface. CEO Jared Scharf and his team of geologists are confident that they will soon be able to bring potential strategic partners on board. A pre-feasibility study is already in progress and, together with the latest positive drilling results, could identify a surprisingly large resource. Gold production in Mali is cost-effective, with mines calculating all-in costs of between USD 700 and 800 per ounce. This results in a huge margin over the current spot price. Of course, the Malian military government must now finally come to an agreement with the local miners on taxes and development contributions. However, according to insiders, the last talks were positive.

If an agreement is reached and a contractual solution to the dispute is found, the focus will automatically shift to the local promoters. These are well-known names such as Barrick Gold, B2 Gold, Endeavour, and Allied Gold. Desert Gold is, therefore, in pole position for a quick takeover deal with its SMSZ project. With a market capitalization of CAD 15.6 million, Desert Gold is one of the most affordable explorers relative to available resources. The rocket could, therefore, take off from the launch pad very soon without a countdown - the stock is incredibly cheap!

Airbus – Back to all-time highs

The European aviation and defense group Airbus is also benefiting from the armaments wave. In 2024, the Company had to overcome delivery and margin issues, but management now expects profits to rise again. This is because orders from abroad are currently coming from flourishing countries such as India and China. The industrial decline in Europe is not being felt there; it is quite the opposite: India alone has ordered over 1,000 aircraft for the next 15 years.

However, US customs policy is raising doubts. This is reigniting the eternal feud between Boeing and Airbus. However, the punitive tariffs threatened by the US are currently changing from day to day. Therefore, it is difficult to estimate what President Trump's threatening gestures mean for Airbus, especially as business with Asia is flourishing and new orders can also be expected in the armaments and defense sectors. Long speculators have already pushed the price above EUR 177 at the beginning of May. With a P/E ratio of 17.8 for 2027, the technology stock is not yet overpriced, especially since analysts are expected to upgrade it soon.

New highs on the DAX and EURO STOXX are now directing the international focus more towards European stocks. The new US president, Donald Trump, is currently doing his country a disservice with his verbal attacks, as his pronouncements snub important international allies. The US dollar is coming under pressure as a result, which is boosting the price of gold. Investors should keep an eye on the junior explorer Desert Gold and consider adding to their positions, as things could move quickly here.