December 1st, 2022 | 11:55 CET
Comeback stocks: Nel, Aurora Cannabis, Barrick Gold, Tocvan Ventures
Table of contents:
"[...] Internally we expect the resource to significantly grow the deeper we mine. [...]" Dennis Karp, Executive Chairman, Manuka Resources
Tocvan: Take off with newsflow in 2023?
After a challenging year for gold and silver producers, 2023 looks good for a comeback. Gold prices have broken out of their downtrend in just a few weeks, shooting from USD 1,630 to USD 1,760. In addition, the US dollar seems to be losing strength and the end of interest rate hikes in the first half of 2023 is in sight. This is an ideal environment for mining stocks. In addition to basic investments such as Barrick Gold and Newmont, exploration companies offer disproportionate opportunities. So for those who like it more speculative, Tocvan Ventures, for example, comes into question. The Canadians recently announced the expansion of their drilling program at the El Picacho gold-silver project in Sonora, Mexico. Having found high-grade gold and silver mineralization in abandoned mine workings in the past, Tocvan is focusing on both the Las Guijas and San Ramon areas.
"Based on established historical pits that identified high-grade structures with the potential for intervening low-grade mineralization, San Ramon has long been our priority target. There are many parallels to the local San Francisco mine, which was discovered through very similar surface features and a significant number of artisanal mine workings. We look forward to evaluating these results and unlocking the potential of El Picacho," said Tocvan CEO Brodie Sutherland. Because of the drill program, investors can expect regular news flow in 2023. This is not a matter of course, especially for explorers.
Compared to established miners, shares of explorers like Tocvan have yet to take off and therefore offer upside opportunities. For example, Tocvan shares are trading at CAD 0.44, just above their yearly low. The market capitalization amounts to CAD 16 million.
Aurora: In pole position in the event of legalization?
Investors are also hoping for a comeback in cannabis stocks such as Aurora. In addition to the discussions about legalization in Germany, the development in the USA is clearly more important for the industry. Legalizing at the federal level in the US would be a real game-changer. However, this does not mean golden times for everyone, as the example of Canada has shown. It has been more than 4 years since Canada legalized marijuana for recreational use. As yet, this has yet to really benefit publicly traded companies. Competition is too fierce, and no brand has succeeded in differentiating itself.
Aurora's revenue in the first quarter of fiscal 2022/2023 (ending June 30) fell 18% to less than CAD 50 million. EBITDA fell to CAD 8.7 million, and cash flow was negative. On the positive side, the Canadians still have cash and cash equivalents of over CAD 350 million. But the operational development shows well the problems of the industry. At the same time, Aurora has a market share of about 24% in Canada and is the global leader in medical cannabis, according to the Company.
From Cantor Fitzgerald's point of view, the good global position is the reason for a possible price increase. The analysts recommend Aurora with "Overweight" and a price target of CAD 3. Aurora is the No. 2 player in the German medical marijuana market and claims to be the leader in the United Kingdom and Poland. The Company is also well positioned in France as the only supplier of marijuana at present. In addition, Aurora holds one of ten licenses to supply 500 coffee shops in the Netherlands. That puts the Company in an excellent position for further liberalization in Europe.
Nel: Comeback after disappointment?
So now Qatar will supply liquefied natural gas, so-called LNG, to Germany. However, it will be in 2026, and the volume will cover less than 3% of the current demand. The infrastructure here, such as the LNG terminals for delivery by ship, is also supposed to be suitable for hydrogen. Then hydrogen is the great hope of the energy transition. However, hydrogen companies such as Nel and Plug Power have disappointed on the stock market this year. They have repeatedly spooked investors with low sales growth and high losses.
The Nel share has lost around 44% of its value from its high for the year of around EUR 1.80. However, the stock has recently shown strength, rising from EUR 1.01 to EUR 1.40. This is linked to the hope that order intake will remain high and that Nel will take a big step towards profitability in the coming year - even if the bottom line is still expected to be a loss. Thus, Jefferies recently confirmed its buy recommendation for the Nel share. The Company's order backlog already fully covers its revenue expectations for 2023 and more than half for 2024. Therefore, Nel is the analysts' top pick in the European hydrogen sector. The price target is NOK 19.
Gold, cannabis and hydrogen could be among the top trends of the coming year. The gold sector is probably the least risky. Those who want to speculate on a recovery of gold companies with "leverage" should bet on exploration companies such as Tocvan Ventures. The share should, in any case, not suffer from a low news flow in the coming year. As part of the energy transition, hydrogen will keep us all busy in the coming year. Nel's market capitalization is already high, but if the Company finally manages to work off its order backlog and reduce losses in the process, higher prices should be on the cards. When it comes to cannabis, investors are losing traction. Developments in Canada show that an open market does not always lead to high profits. But with the legalization fantasy in Europe and the US, there is share price fantasy in Aurora.
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