U.S. Fed rate hikes, Donald Trump, lithium-ion batteries demand, and Trudeau’s mandatory carbon tax should have a positive impact on our top stocks to watch for the coming year
SmallCapPower | January 3, 2017: Our top stocks to watch for 2017 are a combination of trends and market conditions that we see emerging from the activities of 2016 and continuing into 2017. The stocks on our list are all well positioned to capitalize on the themes that we have pulled and are, in our eyes, currently undervalued or outperforming when compared to their industry peers.
Theme #1
Interest Rates- Brings Upside for U.S. Financial Stocks
The interest rate hike by the U.S Federal Reserve on December 14th, 2016, along with the election of Donald Trump, was good news for U.S. banks and other lenders. As the Fed has forecasted another three rate hikes in 2017, the future looks good for the books of financial institutions with outstanding loans. Although it will ultimately reduce growth activities for companies in industry, the banks books will perform better, as interest income will grow without any additional overhead.
First NBC Bank Holding Corporation (NASDAQ:FNBC)
Price: USD$7.50 | Company Market Cap: USD$3,706.22mm
The Company operates through the community banking segment. It offers financial services to businesses, institutions and individuals in southeastern Louisiana and the Florida panhandle. The Company’s primary focus is on commercial real estate and commercial lending. Its loans include construction loans, commercial real estate loans, consumer real estate loans, commercial and industrial loans, and consumer loans. Its securities portfolio consists primarily of the United States Government agency obligations, mortgage-backed securities, and municipal securities, although the Company also holds corporate bonds.
- P/B: 0.37x
- ROE: 9.6%
- EPS LTM: USD$3.12
Northrim BanCorp Inc. (NASDAQ:NRIM)
Price: USD$32.05 | Company Market Cap: USD$221.08mm
Northrim BanCorp, Inc. is a bank holding company. The Company operates in two segments: Community Banking and Home Mortgage Lending. The Community Banking segment’s principal business focus is the offering of loan and deposit products to business and consumer customers in its primary market areas. The Community Banking segment operates approximately 10 branches throughout Alaska. The Home Mortgage Lending segment’s principal business focus is the origination and sale of mortgage loans for one- to four-family residential properties. Its loan products include short and medium-term commercial loans, commercial credit lines, construction and real estate loans, and consumer loans. Its commercial loan portfolio includes both secured and unsecured loans for working capital and expansion. It provides construction lending for commercial real estate projects. It offers personal loans for automobiles, recreational vehicles, boats, and other larger consumer purchases.
- P/B: 1.23x
- ROE: 8.7%
- EPS LTM: USD$2.34
Civista Bancshares Inc. (NASDAQ:CIVB)
Price: USD$19.75 | Company Market Cap: USD$162.73mm
Civista Bancshares, Inc. is a financial holding company. The Company, through the subsidiary bank, Civista Bank, is engaged primarily in the business of community banking. Civista Bank, located in Erie, Crawford, Champaign, Cuyahoga, Franklin, Logan, Madison, Montgomery, Summit, Huron, Ottawa and Richland Counties, Ohio, conducts a general banking business that involves collecting customer deposits, making loans, purchasing securities, and offering Trust services. The Company’s loan portfolio consists of commercial and agriculture, commercial real estate-owner occupied, commercial real estate non-owner occupied, residential real estate, real estate construction, consumer and other. Its securities are classified as available-for-sale (AFS) securities. Its deposits include non-interest-bearing demand deposits; interest-bearing demand deposits; savings account, including money market deposit accounts, and certificates of deposit, including individual retirement accounts (IRAs).
- P/B: 1.19x
- ROE: 12.9%
- EPS LTM: USD$1.81
Theme #2
Infrastructure Spending- Creating Demand for Copper, Coal and Iron/Steel
With Donald Trump’s infrastructure spending promises, it’s a good bet that once he takes office in January demand for all three commodities will continue to rise, pushing prices up for local (U.S and potentially Canadian) miners and producers as he looks to bring jobs back to the United States.
His grand vision is to spend between $500 billion to $1 trillion on infrastructure over a 10-year period to rebuild roads, airports, pipelines and telecommunications networks. Fellow Republicans have expressed complete support for the plan thus far, however the execution of it is still questionable.
Copper:
Capstone Mining Corp (TSE:CS)
Price: $1.26 | Company Market Cap: $458.49mm
Capstone Mining Corp. is a mining company engaged in the production of, and exploration for, base metals in the United States, Mexico, Canada and Chile. It has five segments: Pinto Valley, Cozamin, Minto, the Santo Domingo development project and Other. Pinto Valley Mining Corp., its subsidiary, owns and operates the copper Pinto Valley Mine located in Arizona. Its subsidiary, Capstone Gold, S.A. de C.V., owns and operates the copper-silver Cozamin Mine located in Zacatecas. Minto Explorations Ltd., its subsidiary, owns and operates the copper Minto Mine located in Yukon.
- EV/EBITDA: 9.7x
- P/NAV: 0.3x
Coking Coal:
Suncoke Energy Inc. (NYSE:SXC)
Price: USD$11.34 | Company Market Cap: USD$750.66mm
SunCoke Energy, Inc. is an independent producer of coking coal in the Americas. The Company also provides coal handling and/or mixing services at its Coal Logistics terminals. The Company’s segments include Domestic Coke, Brazil Coke, India Coke, Coal Logistics, and Corporate and Other. The Domestic Coke segment consists of its Jewell, Indiana Harbor, Haverhill, Granite City and Middletown cokemaking and heat recovery operations located in Vansant, Virginia; East Chicago, Indiana; Franklin Furnace, Ohio; Granite City, Illinois, and Middletown, Ohio, respectively.
- EV/EBITDA: 12.3x
- Debt to Equity: 6.2x
- Quick Ratio: 1.5x
Iron Ore and Steel:
Alderon Iron Ore Corporation (TSE:ADV)
Price: $0.315 | Company Market Cap: $43.56mm
Alderon Iron Ore Corp. is a Canada-based development-stage company engaged in conducting iron ore evaluation activities related to its Canadian properties, which are located in western Labrador in the province of Newfoundland and Labrador (collectively referred to as the Kamistiatusset, or Kami, Property). The Company is focused on developing its asset, the Kami Property, which is located next to the mining towns of Wabush and Labrador City. The Kami Property is surrounded by approximately two producing mines and includes over 305 claims in Labrador for a total of approximately 7,625 hectares.
- P/NAV: 0.2x
- Debt to Equity: 0.4x
- Iron Reserve: 197.2mm tonnes (668.5mm tonnes ore @ 29.5%)
Development Stage: PEA to be released in Q1 2017
Commercial Metals Corporation (NYSE:CMC)
Price: USD$21.78 | Company Market Cap: USD$2,583.56mm
Recycling segment processes scrap metals for use as a raw material by manufacturers of new metal products. The Americas Mills segment consists of steel mills, commonly referred to as mini-mills that produce reinforcing bar (rebar), angles, flats and rounds. Its Americas Fabrication segment consists of its steel fabrication facilities that bend, weld, cut and fabricate steel, primarily rebar. Its International Mill segment consists of its mill, recycling and fabrication operations located in Poland. Its International Marketing and Distribution segment includes international operations for the sales, distribution and processing of primary and secondary metals, fabricated metals, semi-finished, long and flat steel products, and other industrial products.
- EV/EBITDA: 12.8x
- Debt to Equity: 1.3x
- Quick Ratio: 2.5x
Theme #3
Cobalt- Supply/ Demand Misbalance
The supply and demand dynamics of cobalt in the lithium-ion battery metals mix have positioned it to see huge growth in 2017. With the recent opening of Tesla’s Gigafactory 1 in Nevada, and its ramping up expected to continue until 2018, there will likely be a continual increase in demand coming from the factory. Additionally, Tesla is expected to make an announcement for its Gigafactory 2 in Europe over 2017, which will further increase demand for the metal.
All of this demand coming online, while supply was reduced in 2016 due to depressed copper prices and environmental problems at nickel mines in the Philippines, has created ideal conditions for a supply squeeze. The Cobalt Development Institute predicts that approximately 44% of cobalt production comes as a by-product of copper production and 50% from nickel. Copper production in the Democratic Republic of Congo (DRC) fell 22% in Q1 of 2016, resulting in a 19% drop in cobalt production for that same time frame. Considering that the DRC produced approximately 51% of global production in 2015, it will have a multiplying effect on price as demand increases. The Philippines has also become a hot bed of uncertainty for its mining practice, as the halting and closure of mines became a real issue in 2016. If all mines facing suspension were closed, it would bring the total nickel mines closed to 18, accounting for approximately 55% of the country’s nickel ore. The U.S. Geological Survey ranked the Philippines as the sixth-largest producer of cobalt in the world at 4300 metric tonnes in 2015.
Additionally, as Elon Musk said he would source all the cobalt for the Gigafactory from North America, look to North American miners that are producing, or on the verge of production, to score big.
Fortune Minerals (TSE:FT)
Price: $0.125 |Company Market Cap: $33.82mm
Fortune Minerals Limited is a Canada-based development-stage mining company that is engaged in developing, mining and processing precious and specialty minerals projects. It is focused on the NICO gold-cobalt-bismuth-copper project, consisting of a proposed mine and mill in the Northwest Territories that will produce a bulk concentrate for shipment to a refinery that it focuses to construct in Saskatchewan. The NICO Gold-Cobalt-Bismuth-Copper deposit is located in the Northwest Territories approximately 160 kilometers from the city of Yellowknife. The products that will be produced at the refinery include cobalt chemicals used to make rechargeable batteries, bismuth metals and chemicals, as well as gold. It also owns the Sue-Dianne copper-silver-gold deposit, which is located over 24 kilometers north of the NICO deposit.
- P/NAV: 0.2x
- Cobalt Resource: 82.3mm lbs
Development Stage: Awaiting funding to proceed with final construction phase
eCobalt Solutions (TSE:ECS)
Price: $0.54 | Company Market Cap: $52.73mm
Ecobalt Solutions Inc, formerly Formation Metals Inc, is a mineral exploration and mine development company. The Company’s primary project is Idaho Cobalt Project (ICP), which is located in the mining state of Idaho. The ICP property covers an area of approximately 4,080 acres and includes over 170 mining claims. ICP consists of the mine, mill and concentrator, referred to as the Mine & Mill (M&M) located in Lemhi County outside of the town of Salmon, Idaho, and a hydrometallurgical plant. Its property also includes Wallace Creek, in which the Company has interest in certain mineral claims located in Lemhi County. Its properties in Saskatchewan, Canada include Kernaghan Lake/Bell, which consists of over 10 mineral claims, and Virgin River, which is located in the Athabasca Basin of northern Saskatchewan.
Price
- P/NAV: 0.5x
- Cobalt Resource: 35.7mm lbs
Development Stage: Bankable Feasibility Study to be complete Q1-2017
Sherritt International Corporation (TSE:S)
Price: $1.33 |Company Market Cap: $420.49mm
Sherritt International Corp is a Top 10 global cobalt producer and is engaged in mining and refining of nickel from lateritic ores with operations in Canada, Cuba and Madagascar. The Company’s segments include Metals, Oil and Gas, Power, and Corporate and Other. The Metals segment includes mining, processing and refining nickel and cobalt from lateritic ore bodies. It has a partnership with General Nickel Company S.A. (GNC) of Cuba (the Moa Joint Venture) and approximately 40% interest in the Ambatovy Joint Venture that owns a nickel operation in Madagascar. It also includes the production and sale of agricultural fertilizers at its operations in Fort Saskatchewan. The Oil and Gas segment includes the oil and gas operations in Cuba, as well as the exploration and development of oil and gas in Cuba, Spain and Pakistan. Its Power segment includes power generating assets, located in Cuba at Varadero, Boca de Jaruco and Puerto Escondido.
- P/NAV: 0.5x
- Cobalt Resource: 339.5mm lbs
Life of Producing Mine Remaining: 20 and 28 years between Ambatovy and Moa mines, respectively
Theme #4
Sustainability- Reducing Emissions
With the announcement of Canadian Prime Minister Trudeau’s Carbon plan and provinces having until 2018 to implement some form of cap and trade system or a flat out carbon tax, businesses will be working to cut their emissions before they get charged for them. The fact that Ontario and Quebec’s Cap and Trade system, as well as Alberta’s Carbon pricing ($20/tonne) starting in January 1st, 2017, means that businesses in those provinces will have to take action sooner rather than later.
This is a good sign for the companies specializing in emission reduction technologies as well as carbon capture and storage, because once emitting companies realize how expensive their emissions really are, there will be a race to reduce them.
STT Enviro Corp (TSXV:STT)
Price: $0.135 | Company Market Cap: $6.19mm
STT Enviro Corp., formerly Semcan Inc., engineers and supplies a range of environmental and industrial products and services. The Company operates through two segments: the Systems & Solutions Group and the Tanks & Industrial Group. The Systems & Solutions Group segment engineers, supplies, commissions and provides after-sale support of chemical storage and preparation systems used in water remediation and emission control systems used to reduce or eliminate pollutants. The Tanks & Industrial Group segment engineers and constructs custom bolted storage tanks, silos and trans-load systems. For water and wastewater treatment, as well as air emissions clean-up, the Company designs, assembles, delivers and optimizes dry bulk material storage and handling systems for the chemicals used to clean or neutralize pollutants from the unloading systems, storage silos, through to the handling, make-down and transfer systems, including integrated instrumentation and controls.
- EV/Revenue: 0.4x
- P/B: 1.4x
- Debt/ Equity: 1.5x
Cemetrex Inc. (NASDAQ:CETX)
Price: USD$7.38 | Company Market Cap: USD$73.20mm
Cemtrex, Inc. is a diversified industrial and manufacturing company that operates in a range of business segments and provides solutions to manufacturing industries. The Company provides electronic manufacturing services of electronic system assemblies, instruments and emission monitors for industrial processes, and industrial air filtration and environmental control systems. The Company, through its Electronics Manufacturing Services group, provides end-to-end electronic manufacturing services, which include product design and sustaining engineering services, systems integration, testing services and assembled electronic products. The Company, through its Environmental Products and Systems group, sells air filtration and environmental control products to a range of industrial and manufacturing industries. The Company, under the Griffin Filters brand, provides an air filtration and environmental control equipment to various industries.
- EV/Revenue: 1.4x
- P/B: 3.8x
- Debt/ Equity: 2.6x
