April 19th, 2021 | 07:35 CEST
Rheinmetall, Airbus, Almonty Industries: Potential lurks here
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
Rheinmetall: Armaments as a bomb-proof business
Rheinmetall shares posted a 56% gain last year and are now on track to reach a new all-time high. From a chart perspective, the next price targets could be in the EUR 115 range, and this is where the stock's high came to an end in 2019 and 2018. In the meantime, the situation for stocks from the defense industry is even better than ever. The new US President Joe Biden reminds his NATO partners of their obligations with similar intensity as his predecessor did. Still, instead of aggressive rhetoric, he is also relying on diplomacy. Given the increasing competition with countries such as Russia and, above all, China, the chances are good that the US will be able to assert its interests and motivate NATO partners to spend more. One of the beneficiaries is likely to be the Rheinmetall stock.
In addition to the defense industry, the company also offers components for automakers. Thus it is benefiting from the growing demand for security solutions in the civilian sector. The pandemic hit Rheinmetall hard and caused sales to slump. By contrast, the Defense division bucked the trend and grew even in the Corona Crisis year 2020. Given the approaching normality and the preference of many investors for cyclical stocks, Rheinmetall is promising. The automotive division will soon no longer be a drag. While the stock carries ESG concerns, it is quite solid and also offers a small dividend. Triple-digit share prices are very likely.
Airbus: Shrinkage and hope for better times ahead
Airbus shares could also be promising - even if that sounds a bit far-fetched in light of the pandemic. In the first nine months of the financial year, Airbus recorded a slump in sales of a whopping 35%. Business with helicopters remained stable and the defense sector also held up reasonably well. However, aircraft production, which has largely come to a standstill due to the pandemic, remains the problem child. At least Airbus delivered a few aircraft and was thus able to keep production at a low level. Nevertheless, harsh cost-cutting measures and also layoffs were necessary to keep the Group on track in the medium term.
So why is the stock still attractive? The stock market trades in the future. Air traffic will return to more normal levels after the pandemic, despite environmental concerns. In the long term, the industry could even benefit from climate-neutral flying. Even if this is pie in the sky, the investments made by Ryanair, which ordered aircraft from Boeing in the middle of the Corona Crisis, show that courage can be rewarded. The stock has pedaled free and is heading for pre-pandemic highs.
Will Almonty Industries soon control 10% of the tungsten market?
If you don't want to invest in weapons makers and don't want the looming structural change in aerospace in your portfolio, you can take a closer look at Almonty Industries stock. Almonty operates as a tungsten producer in an exciting market. Tungsten is used whenever steel needs to be heat-resistant, so the metal is used in the defense and aerospace industries, among others. Other areas of application include medical technology. Since tungsten is unique due to its chemical properties, it cannot be replaced. China recognized this many years ago and now controls 85% of the world market.
Almonty is bucking this trend and is currently operating tungsten projects in Spain and Portugal, the latter of which is already in production. In South Korea, the company is about to bring one of the largest tungsten mines outside China into production. The Sangdong mine can produce tungsten at a low cost year after year for more than ten years. Preliminary work will begin as early as 2021, and the mine's output is expected to increase steadily starting in 2022. At full production, Sangdong is expected to cover 7-10% of the world's tungsten supply or about one-third of all tungsten produced outside China.
Given the advanced stage of the project, the company's existing experience with tungsten, which is sometimes considered a challenging metal in mining circles, and the company's strong partners, which include Deutsche Rohstoff AG, Austria's Plansee Group and KfW, investors should take a look at the stock. RaaS analysts see potential for the stock of more than CAD 2. Currently, the value is quoted at CAD 1.
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