February 15th, 2023 | 12:11 CET
Inflation picks up again! Here is what the figures mean for Mercedes-Benz, Power Nickel and Varta
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"[...] China has become the manufacturing capital of the World, and because of its infrastructure, expertise and capabilities, Silkroad Nickel has strategically positioned itself to partner with Chinese companies in the Stainless Steel and EV industries [...]" Jerre Foo, Corporate Development Executive, Silkroad Nickel
Mercedes-Benz: No fear of rising interest rates
In January, consumer prices in the US increased by 0.5% compared with the previous month. Although the market had expected this increase, the annual inflation rate did not fall as expected but remained high at 6.4% due to base effects. Helaba analysts see the increased gasoline prices as the reason. For central banks, the figures could be a signal to continue: "However, since the level remains far too high and the labor market has not shown any signs of weakness so far, the US Federal Reserve will continue to turn the interest rate screw. Interest rate expectations are likely to remain elevated, especially since consensus estimates have been exceeded," Helaba's economists said immediately after the release of the economic data from the US. But what do these figures mean for investors?
If the probability of higher interest rates increases, this is not positive for the time being. However, as economic activity remains high and the labor market in the US is extremely robust, the markets could grudgingly tolerate further interest rate steps above the level of the 5% expected in the US anyway. For standard stocks like Mercedes-Benz, the latest development is not a drag. However, it will be more problematic for companies whose business models are struggling and which have been burning money for many quarters - the worse the financing conditions, the more critical the market is likely to become of companies where things are going badly. Mercedes is in a strong position due to its high profitability, global footprint and the whopping equity ratio of 28.2%. In addition, the Company is coping well with the mobility turnaround and, at the same time, has consolidated its position in the luxury segment.
Power Nickel and the stuff batteries are made of
A unique situation could also ensure a positive development for the Power Nickel share. Although the Company is regarded as a growth stock and is therefore fundamentally susceptible to changes in financing conditions, Power Nickel operates in an exciting sector: Power Nickel specializes in high-quality battery metals, such as those urgently needed by companies like Mercedes Benz. The Company, which operates in Canada, is committed to high environmental standards. The NISK project in Quebec can be operated with electricity from hydropower and is considered one of the world's most cost-effective and environmentally friendly nickel deposits.
"Currently, Canada represents about 6.7% of global nickel production. Since batteries and e-cars are built on the continent to be sold here, it also makes sense for producers of these industrial goods to buy raw materials on the continent," Power Nickel CEO Terry Lynch stated months ago. Mercedes-Benz, for example, makes about 20% of its sales in North America, based on 2021 figures. There will continue to be demand for many cars in North America in the future. In addition, there are growth opportunities in Latin America. Companies like Power Nickel should benefit from these conditions and not have any financing worries in the future. Only recently, Power Nickel also announced a cooperation with the Australian company Fleet Space Technologies, which should lead to Power Nickel being able to find new raw material deposits even more easily in the future than before. After the announcement of the cooperation, the share price managed a liberation blow. The general conditions for Power Nickel appear favourable - inflation data from the USA or not. Interested investors can ask Power Nickel's CEO, Terry Lynch, questions online and follow his live presentation at the 6th International Investment Forum (IIF) today, February 15, at 10:30 a.m. CET.
Varta: Will the comeback succeed?
German battery manufacturer Varta shows that it is sometimes more complex than assessing the interest rate policies of the major central banks. After a profit warning last year, the share is bobbing along. The stock, which used to be in the triple digits, is now trading at just less than EUR 30. If you look at the long-term chart, Varta offers itself for a comeback. After the sell-off, however, this comeback should be fundamentally underpinned. After the e-car plans did not excite investors last year, Varta has to bake small rolls for the time being. It looks as if the share will bump its head a few more times around EUR 30 before a revaluation is possible. Especially for manufacturing companies in innovative areas, such as the production of batteries, the devil is in the details.
What is certain, however, is that the electrification of the world will continue. While alternatives, such as hydrogen, are also an option in some areas, such as trucks or delivery vans, electrification remains a mega-trend. Instead of focusing on individual solution providers, who can always miss the mark, investors should also target commodity projects around the electrification trend. The battery metal nickel is an exciting option in this context; power nickel is currently entering new spheres.
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