By Barbara Kollmeyer
Wobbles aside, it’s been a pretty impressive week for stocks thus far — 5%-plus gains across the board, which has sparked some market-bottom talk.
But big data is coming — Friday’s payrolls numbers and next week’s CPI — both important cogs in the Fed’s decision-making wheel and market direction. “We’re about to get an influx of data showing just how fractured the economy could be after a year of rate hikes,” Callie Cox, U.S. investment analyst at eToro, tells clients.
Asset manager Horizon Kinetics launched the Inflation Beneficiaries Exchange Traded Fund /zigman2/quotes/223823582/composite INFL +0.71% in early 2021, when CPI was still below 2%. People thought they were “crazy” to be worrying about inflation, James Davolos, senior vice president and co-portfolio manager on the fund, told Real Vision in an interview that published Thursday.
Davolos said they see the prior 30 years as steeped in artificially low inflation, i.e. disinflation, due to an “era of abundance,” with the world now moving into an era of scarcity. In our call of the day , he offers three stock picks to ride out that regime of higher, stickier prices.
The first pick is Canadian-listed PrairieSky Royalty /zigman2/quotes/206561630/delayed CA:PSK +1.62% , which invests and holds royalty interests in oil and natural gas properties in the country. As the manager explains, most energy related companies are very capital intensive, such as Exxon Mobil /zigman2/quotes/204455864/composite XOM +0.66% , which spends big to explore and extract oil and gas.
“The reason why royalties are such an eloquent business model and not really properly appreciated in the market is that they remove a lot of that capital intensity because a royalty in its purest form is purely a revenue interest in the production of another oil company,” he said.
And while PrairieSky shares are up 44% year to date, Davolos said they are bullish because they see energy prices rising, with Canada “setting up for a very big rise in production for a variety of reasons,” and starting to produce more in-demand conventional oil such as the kind found in the North Sea. In the near term, lower U.S. and Canada rig counts combined with an expected China economic reopening in November will lead to big energy shortfalls.
His second idea is multinational food processing and commodities trading group Archer Daniels Midland /zigman2/quotes/203479136/composite ADM +0.21% , which plays into the idea of higher food prices for longer, with more demand in countries such as China and India and struggles on the supply side as war-driven fertilizer shortages cause smaller crops in Western countries.
“So we think the earnings profit in the large global agribusinesses are actually going to be a lot stickier,” said Davolos.
His final idea is Brookfield Asset Management /zigman2/quotes/202267951/delayed CA:BAM.A +0.10% /zigman2/quotes/202495225/composite BAM -0.49% , dually-listed in Canada and the U.S. He describes it as “a leading asset manager of real assets” — real estate, renewables, infrastructure, with a smaller leveraged buyout business as well as a credit business through the acquisition of Oaktree Capital Management. They’ve also been quietly building a reinsurance business, he added.
And a lot of these products, whether it be renewables or real estate, rents or tolls are often linked to a market-based measure “and the world is going to be starved for rising real yields as opposed to these fixed yields,” he said.
“What really differentiates them other than their long history, expertise and counter cyclical investments is that in addition to the asset manager, which is fees, they also have tens of billions of dollars of co-invested capital,” Davolos added.
Stocks /zigman2/quotes/210598065/realtime DJIA +0.0091% /zigman2/quotes/210599714/realtime SPX -0.16% /zigman2/quotes/210598365/realtime COMP -0.59% are lower as trading begins, with bond yields /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.59% /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -0.09% edging higher, but the dollar /zigman2/quotes/210598269/delayed DXY -0.19% once again on the rise. Oil prices /zigman2/quotes/211629951/delayed CL.1 +1.02% ar flat, natural gas /zigman2/quotes/210189548/delayed NG00 -1.53% is up. Gold /zigman2/quotes/210034565/delayed GC00 +0.30% and silver /zigman2/quotes/210315219/delayed SI00 +0.14% are firmer and bitcoin /zigman2/quotes/31322028/realtime BTCUSD +2.52% is in the green, at just over $20,171.
IBM /zigman2/quotes/203856914/composite IBM +0.21% will invest $20 billion in New York’s Hudson Valley region over a span of 10 years.
Lucrative profits await Carl Icahn and other big-name investors after Tesla /zigman2/quotes/203558040/composite TSLA -1.14% CEO Elon Musk decided to end his war with Twitter . But financial advisers say individual investors should proceed carefully .