The transition we have seen over the past six months across the market is landmark and defining. It represents a transition from growth stocks to value stocks. Put another way, it represents a transition from investing in stocks that will possibly drive big cash flows years from now through new innovations to investing in stocks that will positively drive big cash flows now through established operations.
Inside of that theme, several groups have emerged into the spotlight based on changes in the landscape of asset prices around the world. Namely, the top groups to emerge over recent weeks have been in the financials and commodities spaces, both of which are generally considered highly cyclical groups because they tend to benefit most during the best periods of the business cycle.
For the financials, the spur is a steepening of the yield curve, as interest rates at the long-term end of the curve rise faster than rates at the short end, leading to higher net interest margins on lending operations – without getting too deep into the weeds, in rough terms, they pay the short end and earn the long end.
For the commodities plays, we are seeing strong price action in oil, copper, ag, and lumber prices over recent months and weeks. That group action has led to coordinated flows into equities in the commodity space as money managers look to diversify away from growth stocks during the rapid rise in the price of future money.
This mirrors other bull markets in their later stages, and it can go on for quite some time before the Fed starts to tighten and the liquidity driving these gains gets siphoned back out of the system.
For now, that puts a strong tailwind at the back of small-cap commodities plays including Weyerhaeuser Co (NYSE: WY), Teck Resources Ltd (NYSE: TECK), Camber Energy Inc (NYSEAMERICAN: CEI), and Green Plains Inc (NASDAQ: GPRE).
Weyerhaeuser Company (NYSE: WY) trumpets itself as one of the world’s largest private owners of timberlands, began operations in 1900. The company owns or controls approximately 11 million acres of timberlands in the U.S. and manages additional timberlands under long-term licenses in Canada.
The company manages these timberlands on a sustainable basis in compliance with internationally recognized forestry standards. The company is also one of the largest manufacturers of wood products in America. It is a real estate investment trust that generated $7.5 billion in net sales and employed approximately 9,400 people who serve customers worldwide.
WY recently announced the completion of its acquisition of 69,200 acres of high-quality Alabama timberlands from Soterra, a subsidiary of Greif, Inc., for approximately $149 million earlier this week. Separately, the company announced an agreement to sell 145,000 acres of timberlands in the North Cascades region of Washington to Hampton Resources for $266 million. The company expects to recognize a gain on the sale and anticipates no tax liability in conjunction with this transaction.
“These transactions exemplify our ongoing effort to strategically optimize and upgrade our timberland portfolio,” said Devin W. Stockfish, president and chief executive officer. “Our Alabama acquisition will grow our near-term and long-term cash flow, and the Washington sale completes our targeted large-scale divestitures of non-strategic acreage in the West. We will continue to seek prudent opportunities to enhance our portfolio with high-quality, well-managed timberlands that will drive long-term value for shareholders.”
While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action WY shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -4% on above-average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities. WY shares have been relatively flat over the past month of action, with very little net movement during that period.
Weyerhaeuser Company generated sales of $2.5B, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 21.5% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($1B against $0).
Teck Resources Limited (NYSE: TECK) trumpets itself as one of Canada’s leading mining companies
Teck is committed to responsible mining and mineral development with major business units focused on copper, zinc, and steelmaking coal, as well as investments in energy assets. Green metals and high-quality steelmaking coal are required for the transition to a low-carbon world.
TECK recently announced a $500,000 contribution to UNICEF Canada in support of life-saving COVID-19 response efforts in India.
“Our donation to UNICEF Canada will go towards the immediate life-saving response as well as long-term hospital infrastructure in the most impacted areas of India,” said Don Lindsay, President and CEO, Teck. “COVID-19 is taking a terrible toll on the people of India and our hearts go out to them. This funding will go towards urgent healthcare requirements and help support those most in need during this incredibly challenging time.”
Even in light of this news, TECK hasn’t really done much of anything over the past week, with shares logging no net movement over that period. Shares of the stock have powered higher over the past month, rallying roughly 15% in that time on strong overall action.
Teck Resources managed to rope in revenues totaling $2.5B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 7.2%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($369M against $3.5B, respectively).
Camber Energy Inc (NYSEAMERICAN: CEI) is positioned well as a small but rapidly growing player with wide exposure to production capacity growth in the oil and gas space in the southern domestic US market.
The company is particularly interesting given its pending merger with its majority-owned subsidiary, Viking Energy Group Inc (OTC US: VKIN). The strategic combination will give CEI investors strong exposure to historically rich oil and gas properties spread across Oklahoma, Texas, Louisiana, Mississippi, and Kansas, with significant exposure to the Gulf Coast.
CEI is moving toward the finalization of its merger with VKIN, and we would assume further M&A-based expansion of this production team in the oil and gas space could be forthcoming. In addition, VKIN’s performance metrics continue to show tremendous promise. According to its recent filing, Viking just posted record topline performance, posting 2020 revenues above $40 million, which is up over 400% from 2018.
James Doris, President and Chief Executive Officer of both Camber and Viking, commented, “We are pleased with Viking’s results given the challenges faced in 2020. In many respects the year was about survival for E&P companies given the unprecedented price environment and market conditions, and not only did we endure thanks to the commitment and perseverance of our entire team we also managed to improve in key areas, including increasing overall revenues and reducing debt at the Viking level. We remain focused on executing on our strategy and forging a path toward profitability.”
Camber Energy shares have been broadly strong, up as much as 75% in the past eight months. But the stock has pulled back over the past 2 months dramatically, which could offer an interesting opportunity to investors interested in unsung small caps with compelling narratives already in place under the radar.
Green Plains Inc (NASDAQ: GPRE) bills itself as a leading biorefining company focused on the development and utilization of fermentation, agricultural and biological technologies in the processing of annually renewable crops into sustainable value-added ingredients.
This includes the production of cleaner low carbon biofuels, renewable feedstocks for advanced biofuels and high purity alcohols for use in cleaners and disinfectants. Green Plains is an innovative producer of Ultra-High Protein and novel ingredients for animal and aquaculture diets to help satisfy a growing global appetite for sustainable protein.
GPRE recently announced financial results for the first quarter of 2021. Net loss attributable to the company was $6.5 million, or $(0.17) per diluted share inclusive of a gain on the sale of certain assets of $36.9 million and a $22.1 million charge related to extinguishment of convertible notes compared with a net loss of $16.4 million, or $(0.47) per diluted share, for the same period in 2020. Revenues were $553.6 million for the first quarter of 2021 compared with $632.9 million for the same period last year.
“Our first quarter was transformative to both our balance sheet and our technology platform. Additionally, our 1.0 platform performed well, as our risk management and hedging programs were beneficial to the quarter,” said Todd Becker, president and chief executive officer. “Fully funding our Total Transformation Plan to deploy Fluid Quip’s protein technology was a critical step in building the biorefinery platform of the future. The milestones achieved during the quarter have moved us along the path to achieving our 2024 financial goals, including partnering with BlackRock and Ospraie Management in the acquisition of Fluid Quip Technologies to transform Green Plains into a global leading ag-tech company focused on value-added, low carbon novel agricultural ingredients.”
The stock has suffered a bit of late, with shares of GPRE taking a hit in recent action, down about -16% over the past week. Shares of the stock have powered higher over the past month, rallying roughly 3% in that time on strong overall action.
Green Plains generated sales of $553.6M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 10.4% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($654.4M against $421.5M).
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