Market Talk
The
Federal Reserve, led by Jerome Powell, will report on their decision on
interest rates on July 26. Their goal is to quell inflation from 4%
range back down to 2 %. The last print of inflation was the rate of inflation rose about 3 %, slower than previously. The Fed target rate of inflation is about 2%. That said, the US economy seems to be running "hot" with jobs growth and wages increasing. Ironically, a slowdown of GDP in China and elsewhere spooked the markets last week. It seems that in America, for now, many pundits are taking the notion of recession "this year" off the table. The question, in my view, is how far is the Fed willing to go to try to put a stake in the heart of Dracula known as inflation.
The jobs
reports have been coming back from pandemic lows and wages have been
rising that tends to keep inflation going.
The Fed has already signaled that it could raise rates another 25 %
basis points to hike to 5.5%. Further, they signaled that it could be
not one, but two rate hikes to come. We should recall that the Fed's
primary mission is to fight inflation.
They
have to try to slow down the economy and try to make the soft landing
of low inflation and full employment. But the casualty of higher rates
is typically job cuts and other impacts that can lead to the R word. One
impact of higher rates is commodity prices like Gold tend to dip. This
can also happen to crypto - like bitcoin. As time ticks forward to
July 26, it may be interesting to see if both gold and bitcoin issues
start to subside in price.
We will see, said the blind man, as to how this all works out. On one hand I suspect the Fed does not want the stock market to fly and especially crypto and related stocks because that in of itself can fuel inflation. I suspect the Federal reserve in addition to raising interest on July 26 will be very tempered in their guidance going forward. Meanwhile, fear of missing out (FOMO) is driving the equity markets higher Is that a fool's game following the herd or a smart investment strategy? We will see what guidance the Federal reserve offers as to their inflation fighting mission on July 26.
Stock Talk
Let's think about stock fundamentals.
For one, actual earnings matter. The share price-to-earnings (PE) ratio is an indicator of value in any particular company stock. The lower the PE in a sector typically means that the stock is performing well and may be undervalued. Many stocks are priced so high, on hype or hope for example, that they do not even register a PE. This applies to many crypto based stocks. The market is pricing up those stocks "on hope" that the companies will meet "expectations" in the future, possibly in years to come.
Another metric to determine a good "buy stock" is how the company rewards their investors. The dividend, if offered, is a key way a good company returns value to loyal shareholders. Many high priced stocks trading on hype or hope - have ZERO dividend
Today, the focus is a company that meets both metrics of value. This is not a "hope and hype" company. Their on-going metallic coal operations for producing STEEL are quite profitable. It seems under recognized at the moment, but in a few months, it all could change when plans for discovered reserves of rare earth elements in the Ramaco Wyoming mine are reported.
Ramaco Resources ( METC):
Both METC (Class A) and METCB (class B) seem undervalued.
There are " bitcoin miners " losing $$ chasing tails and pay no
dividend. Priced many multiples above a real miner like METC that has
a low PE of 4 and a comparatively great eps ($2.25) and about a 5% dividend - and has
a take in possibly the largest American reserve of rare earths that
have better substrate quality for processing than competing reserves
held by China. Magnetic rare earth elements are used in all kinds of electronic devices and especially in electric motors to make them more efficient. This extends RANGE in electric vehicles. Google says:
"Rare earth metals and the alloys that contain them are used in a variety of high-tech applications, such as wind turbines, electric vehicles, rechargeable batteries, radar systems, and laser crystals. For this reason, they are called "vitamins of modern industry."
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Now this makes METC a potential American treasure because China dominates the rare earth metal industry .
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METCB
shares were newly formed as a royalty vehicle that will derive revenues from a royalty from METC mining activities. While full details are
in process, a back of envelope calculation points to very positive
dividend that could be paid to METCB shareholders.
The
catalyst for this observer will be what is decided with the magnetic
rare earths in the Ramaco Wyoming property. Previous findings pointed to
vast rare earths that would potentially be more readily mined requiring
less processing.
In the meantime, the revenues and METC earnings from
metallic coal at several mines are doing just fine. This is NOT thermal
coal, it's coking coal, often called metallic coal, with high carbon used to produce steel from iron ore.
Metallic coal is needed to produce, all
kinds and levels of steel ranging from high quality refined steel with
special added alloys to pig iron used for example in automotive and other iron based castings.
Based on the above observations, the Jones report view is that both METC and METCB shares are likely undervalued and represent a good "buy some" at current price ranges. When the magnetic Rare earths come in it should ADD to an already great story and earnings and dividend.
I
close this post by noting that any view on the market and stocks on any
particular day may change in the future days to come. That is why
we watch and see how our views match up with the reality of the time.
But trying to look ahead a few months into the future may be a way to
explore things. If you think too deep about world events and the recent
alliances forming, projecting ahead can be a dicey endeavor. With all
the above caveats and attempted prognostications, I will close this
post.
Stay tuned for more opining on the market and stocks to watch.
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ALL in my humble opinion, scroll down and read more.This site does NOT make Buy / Sell recommendations.
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