Rheinmetall, Saturn Oil + Gas, Canopy Growth - Financial sustainability as a return booster

Canopy Growth - Still in turnaround mode

Heaven and back, that is how you could describe the performance of shares in the cannabis sector since mid-March of the current stock market year. After marking a new low for the year at CAD 3.74, Canopy Growth shares exploded by a whopping 443% to CAD 20.50 within a period of just under 6 weeks.

The reasons for the excitement were statements indicating that the US Drug Enforcement Administration (DEA) sent positive signals about lowering the risk classification of cannabis. So far, cannabis has been classified in the same Schedule I category as LSD or heroin. The US Department of Health and Human Services is currently applying for cannabis to be reclassified to the "less dangerous" Schedule III section. However, an official statement from the DEA has not yet been issued.

After the hype, and in the absence of a final commitment from the DEA, which, in our opinion, could lead to a revaluation of the cannabis sector, a sharp correction pushed Canopy shares down to a current level of CAD 12.52. From a technical point of view, a further drop, even to single digits, would be possible without destroying the current upward trend. The golden ratio, the 61.8 Fibonacci retracement of the upward trend that began in mid-March, runs at CAD 9.66. It will be exciting for shareholders on May 30 when the Company presents its figures for the fourth quarter and its past financial year.

Saturn Oil & Gas - Further records

Oil has been in correction since peaking at USD 131.06 per barrel in March 2022. West Texas Intermediate crude oil, or WTI for short, even broke through the USD 80 per barrel mark. Even if the base prices have not quite bottomed out yet in the short term, prices above USD 100 per barrel should only be a matter of time in the long term due to the demand for fossil fuels. This offers investors an opportunity to protect their portfolio from further rising energy prices and to maintain giants such as Exxon, BP or Chevron at a cheaper level.

Another interesting buy candidate is the Canadian midsize producer Saturn Oil & Gas, which has been able to multiply its production output in recent years through smart acquisitions. With the acquisition of further oil and gas deposits in Saskatchewan, production is now between 38,000 and 40,000 barrels of oil equivalent per day**.

The transformation was impressively demonstrated in the figures published last week, as the Calgary-based company delivered further record results.

In the first three months of fiscal 2024, Saturn Oil & Gas increased its average daily production to 26,394 barrels of oil, compared to 17,783 barrels in the same period last year. Despite the low oil prices compared to the previous year, revenue increased from CAD 131.4 million to CAD 168.2 million. Adjusted EBITDA also improved from CAD 69.9 million to CAD 88.2 million. In addition, the Company succeeded in significantly reducing its debt burden, as liabilities were reduced from CAD 556.6 million to CAD 386.4 million.

Rheinmetall - Correction underway

One of the biggest winners of the turnaround is undoubtedly the integrated technology group Rheinmetall, which is overwhelmed with orders due to the rearmament of NATO and its allies. The need to keep replenishing the armed forces' ammunition stockpiles due to the war in Ukraine will likely lead to further follow-up orders in the medium term.

An unnamed NATO member state has now awarded a large-scale order with a volume of almost EUR 300 million to the Düsseldorf-based company. The order comprises several tens of thousands of artillery shells and several hundred thousand propellant charge modules, Rheinmetall announced in Düsseldorf on Friday. The ammunition is to be delivered between 2024 and 2028.

Despite the continued strong news flow, the Rheinmetall share was no longer able to defend its highs of EUR 571.80 and has reduced its overbought position in recent weeks with a loss of around 7% to EUR 530. Since April 9, the chart has formed a short-term upward trend, which currently runs at around EUR 508 and could serve as support.

The statistics show that many non-ESG-compliant companies from the defense, oil and gas, or cannabis sectors are outperforming the broad market. Rheinmetall, for example, has been one of the DAX companies with the strongest returns since the start of the war in Ukraine. Canopy Growth could continue its upward trend after the correction. Saturn Oil & Gas posted further record results in the first quarter.