26. May 2021 | 09:36 CET
White Metal Resources, BASF, K+S: How to react to 4% inflation
As reported by Handelsblatt, the German Bundesbank expects an inflation rate of up to 4% by year-end. Within the eurozone, for which the central bank ECB is responsible, it could be well over 2%. This mixed situation is particularly tricky for Germans. While inflation in Germany is already very high, the lower price momentum within the eurozone could ensure that the ECB leaves its money floodgates open for even longer. In the long term, this could encourage inflation to overshoot. How can investors react to this? We present three stocks.
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ISIN: CA9640461062 , DE000BASF111 , DE000KSAG888
"[...] 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
White Metal Resources: Many projects, small market capitalization
In an inflationary environment, commodities, in particular, rise in price. The Canadian Company White Metal Resources offers investors access to more than five commodity projects around gold, silver, copper and zinc. The projects Vanguard East & West, Tower Stock, Pen and Seagull, are 100% owned by the Company and are located in the Canadian district of Ontario. White Metal Resources can acquire the Tower Stock property in Ontario 100% with only a small cash outlay of CAD 145,000 over three years, in addition to 1.2 million shares. According to the Company, the property's geology is similar to Alamos Gold's Young Davidson Mine, one of Canada's largest underground mines.
The Tower Stock project has already delivered outstanding drill results, including 1.5 meters of 546 g/t gold and 61.5 meters of 2.4 g/t gold. For copper, on the other hand, the Vanguard West and Vanguard East properties are well known. Again, historical drill results speak volumes, including 1.15% copper, 0.43 g/t gold and 5.03 g/t silver over a distance of 12.2 meters. Another hole over 6 meters even came up with copper grades of 3%, 1.78 g/t gold and 17.95 g/t silver. The Okohongo project in Namibia also has high historic grades of copper and silver. In addition, there are three other projects that White Metal Resources operates as joint ventures.
With the numerous properties and diverse projects around the most exciting commodities of our time, White Metal Resources is well prepared for the upcoming commodity boom and an inflationary market environment. The Company has tangible assets in the ground and continues to explore its properties. In addition to a possible re-rating as exploration work continues, resources in the ground may soon be valued more ambitiously due to rising prices. The Company's focus on joint ventures also provides flexible options when it comes to future financing. The market capitalization is currently only around EUR 9 million. The share must therefore be considered highly speculative - but the general conditions also suggest great opportunities.
BASF: What do rising prices mean for the chemical industry?
The situation is different at BASF. Here, the risks are limited even in times of crisis. The stock does not offer such great opportunities. On a three-month horizon, BASF has a zero return. In contrast, things look much better in the long term. Over the last twelve months, the share price has risen by almost 50%. BASF is in a restructuring phase. The Company has successfully sold its construction chemicals subsidiary and also cut jobs around its service offering. The Group operates globally and generates only 43% of its sales in Europe, followed by North America and Asia with similar sales shares. Although the share price has risen in the course of the bull market for intrinsic values and offers an attractive dividend, rising raw material prices can also become a burden for companies in the chemical industry. Investors should therefore be cautious with the share.
K+S: How long do investors have hope?
Investors were also cautious about K+S in the first few months of the year. Since then, however, the value has risen significantly - in the past three months alone, it has gone up by 12%. For a standard stock, this is a good result. Two weeks ago, K+S raised its forecast and reported good business around fertilizers and other products for agriculture. Agricultural commodities are also vulnerable to dynamic price increases in an inflationary environment. Being able to farm existing land efficiently then becomes increasingly important, and this is why K+S is benefiting. Investors should nevertheless be aware that the Group is still in a deep crisis. Free cash flow is falling ever lower. Earnings are also falling. The share of borrowed capital is already high. The stock has short-term momentum, but the Company is not healthy.
Conclusion: Industrial stocks or growth stocks?
When looking for attractive investments in an inflationary environment, investors should make sure that risks are limited. Large industrial companies often have the problem of carrying legacy issues or are so highly diversified that price gains are small. On the other hand, small caps offer the opportunity for dynamic growth because of their few projects. In particular, companies that offer a variety of commodities can be promising.