Sunday Jones Report: Growth versus Time...
(8/24 Update: A few clarifications and additional details have been added to the original Sunday Edition below, including updates concerning Amazon/Anthropic paper gains and recent ONCY/FDA developments, along with some M&A speculation.)
Market Talk
Growth vs. Time
Well, this is a fine mess we are in, Ollie.
Don't look now, but the national debt has grown to $40 trillion and our strategic oil reserves remain near levels not seen since the early 1980s. We are also in a prolonged "engagement" with radical Islamists, where their doctrine seeks religious dominance versus ours of religious freedom, liberty and justice for all, with the unalienable right to pursue happiness.
The above is a general synopsis by an American, second generation of the WWII Greatest Generation that helped save the world from global tyranny.
So how are we dealing with the "things" above that continue developing?
The latest proclamation from the Treasury is that we will "grow our way out of it."
But alas, perhaps some—like those "bond vigilantes"—are not quite on board.
Perhaps they are looking at what IS, and not what could be.
Meanwhile, the Treasury seems inclined to view some of the market's growing concern as near-term "noise," while maintaining that economic growth can provide the longer-term answer.
But the bond market has a way of making its own noise.
And when investors start demanding higher yields to take on the risk of holding all that debt, that noise can become increasingly difficult to ignore. Higher long-term rates then work their way through the economy into mortgages, corporate borrowing and other forms of credit.
Meanwhile, the Fed chairman seems content to keep the market guessing about the future direction of short-term interest rates.
And that's where a cycle can begin.
Let's stop there, because the words that can follow—recession, inflation, stagflation—start becoming counter to the very goal of growing ourselves out of this fine mess, Ollie.
Stock Talk
So let's go back to "things and seems," with the full awareness that things change—along with the sentiment and trading whims of investors in a highly volatile climate.
One thing: It's not just our economy. It's the global economy that is also experiencing higher costs for goods and services.
So now comes the question of "who wins?"
Several sectors are up for grabs in answering that question.
Recall our recent notion of taking small "test positions," either with real investment dollars or just imaginary play money. Two areas we've been watching are energy—particularly oil and gas—along with gold and silver.
Not long ago, we watched energy prices move higher while gold miners corrected on the perception that higher energy costs would mean higher mining costs.
But one miner in particular stuck out as a very good performer: Kinross Gold (KGC), and perhaps some Hecla Mining (HL) as well.
These two remain on the Jones watch list for continued performance.
And consider this: KGC just produced quarterly earnings of 71 cents per share. That's more earnings per share than some companies whose stocks trade for more than $100 a share.
It has sometimes seemed that the miners don't always get the respect. But after watching developments at Kinross and Hecla over recent years, perhaps that respect is overdue—and starting to happen.
Moving on to some more "things that seem," let's talk oil and natural gas.
Two companies producing here in America's Permian Basin stand out: Devon Energy (DVN) and perhaps Permian Resources (PR). This is just a pointer to two stocks to watch.
Moving on to the Treasury Secretary's notion of growth...
That growth can come from several areas, but one is certainly the tech sector.
The possible picks here are numerous. But AI stocks have seen some wavering and some doubt.
One may say that now that the genie is out of the bottle, the role of AI in the world cannot be stopped. The problem is that the energy AI demands is enormous.
One company that fostered enough interest for a small test position is the South Korean telecom company SK Telecom (SKM). It pays a fair dividend, but that's not so much the reason.
The reason is that, early on, SK Telecom reportedly invested $100 million in the private AI company Anthropic. With the possibility of an Anthropic public offering somewhere down the road, it seems to put SKM on the radar as a continued Stock to Watch.
As an aside, it may be noted that Amazon touted some amazing earnings last quarter.
BUT, largely lost in those headline numbers was a whopping $53.4 billion in non-operating pre-tax gains—largely PAPER gains reflecting the increased value of Amazon's investment in what private company?
Yes, if you replied Anthropic, that would be correct.
Hmmm...
Sounds a little familiar to SKM, doesn't it?
So going forward, one very speculative company making progress on the energy-needs front is Oklo (OKLO).
This one was highlighted in a recent Jones Report, and we'll note it again as speculative—but also as a company on a glideslope toward possibly delivering viable solutions in the form of advanced small nuclear reactors as potentially better and safer environmental solutions in the not-too-distant future.
The next stock notion may be too speculative for some and should probably, and rightfully, be treated with caution.
However, one beaten-down penny stock remains on the Jones Report radar: Oncolytics Biotech (ONCY).
The market may just be missing some of the recent progress. Pelareorep has received FDA Fast Track designation in colorectal cancer, while the company continues working with the FDA toward a registration-directed trial strategy that could provide a path toward faster approval.
Recent FDA feedback opens the possibility of transitioning directly from the current randomized trial into a pivotal Part B, potentially shortening the traditional path toward FDA approval.
With the regulatory path potentially becoming clearer, one might also wonder whether ONCY is beginning to garner increased interest from large pharma. Adding some intrigue, management has incentive awards that vest upon a definitive agreement involving either a buyout of ONCY or an exclusive license of Pelareorep. Admittedly, this delves into speculation. Until something happens, it's a spec stock under a buck for now.
Growth vs. Time
And perhaps that brings us right back to where we started.
We've talked recently about taking small "test positions," either with real dollars or simply imaginary play money. But those test positions weren't intended to be the destination. They were a way of testing a notion.
And some of those tests are beginning to point toward stocks that may actually outperform.
That's really one of the goals of this report. Not to make buy or sell recommendations, but to look across a changing market and try to identify some of the companies that just might have what it takes to climb the mountain.
Some will stumble. Some will turn around. And some may surprise us and keep climbing.
Of course, individual stock notions don't always move with the broader market flows. Sometimes the whole market decides to change direction.
That's another reason to keep some dry powder.
And dry powder doesn't necessarily have to sit idle. Something like USFR, an ETF holding floating-rate U.S. Treasury notes, can provide a place to wait while still collecting some income.
There is another income notion as well. Established high-dividend stocks may become increasingly interesting as their share prices retreat and their yields rise. Altria (MO), with its long record of consistent and growing dividends and a yield around 6.4%, starts looking a little different in the 60s than it did in the 70s.
Then, when one of those test positions begins showing signs that it really may be able to climb the mountain, the dry powder is there.
Because the idea isn't to be invested in everything all the time.
It's to keep looking for the climbers.
After all, in the race between Growth and Time, time doesn't stop to wait for anybody.
Stay Watchful.
