Sure looks like a market struggling with rotations between growth and value stocks.
One day the growth stocks sell off on fears of higher interest rates and rising inflation or something–and because after such a strong rally in the style growth stocks are very expensive. And that same day value stocks move higher because increasing economic growth is a very, very good thing for a style that depends on a strong economy for much of its revenue gains.
The next day the market’s preference reverse and growth again outperforms value.
What’s a poor investor to do? Especially the long-term investors with very long time horizons that are the focus for my new “Millennial Portfolio (for investors with more time than money.)” You can find that portfolio on my subscription site, JubakAm.com.
How about a few stocks that offer both growth and value? I’ve got two stocks today that I’m going to add to the Millennial Portfolio: Deere (DE) and Southern Copper (SCCO)
I added Deere to my Jubak Picks Portfolio on May 5 on the strength in the rally in the prices of farm commodities. Wheat prices hit new highs at $7.46 a bushel at the end of April. That’s the highest since February 2013. Corn climbed to a new eight year high. That day soybeans rose for a tenth straight session to reach on eight year high. When the prices of farm commodities climb, it’s tough times ahead at the grocery store for consumers. But it’s good times ahead for farmers and that means increasing sales of tractors and other farm equipment for Deere (DE). The historical pattern for Deere is very clear: When commodity prices climb and take farm incomes up, farmers buy more machinery from Deere. And that makes Deere a great value play on a stronger economy and rising commodity prices–and a great hedge against any increase in inflation. But the company is more than just a run-of-the-mill cyclical. The company has got a very strong growth component too thanks to its drive to add Deere more technology to its farm machines–both hardware and software. Farmers using the newest (and if you own Deere you really like that word “new” and what it implies for sales) Deere machinery can harvest and plant more efficiently (and faster) while using less in seed, less fuel, and fewer agricultural chemicals. Buy a new Deere farm machine and watch your productivity rise and your costs fall. Deere’s farm machines, like the newest generation of automobiles, are actually technology platforms connected to the Internet. In the case of a Deere tractor, for example, that gives the farmer the ability to optimize planting and the application of fertilizers to match real time soil and moisture conditions, for example. (I also like Deere’s 2017 purchase of Wirtgen that added equipment for road construction (milling, paving, and compacting) and mineral mining and processing (surface miners, crushers, and asphalt plants) to Deere’s existing portfolio of bulldozers, graders, wheel loaders, and excavators. The deal, Morningstar says, moved Deere from a global Top 10 player to a Top 3 player behind only Komatsu and Caterpillar. And positions Deere to take advantage of any increase in infrastructure spending.)
The company raised its dividend 18% in February and now pays 0.96%. The shares trade at a forward price to earnings ratio of 24.94 on projected earnings. When I added the stock to my Jubak Picks Portfolio I calculated a one year target price of $460 a share. The stock was trading at $383.37 at 3:00p.m. New York time on May 11. The shares are up 0.92% from the May 5 purchase price of $379.58. (And remember that these days it’s easy at many online brokers to buy part of a share.) Deere has been a member of my long term 50 Stocks Portfolio since the start of that portfolio on December 30, 2008. That position is up 918.80% as of May 11.
I added Southern Copper to my Dividend Portfolio on October 12, 2020. The shares are up 71.22% since then, but I don’t think the run is over for this stock. In commodities world there are bounces. There are rallies. And then there are super cycles of higher prices that can go on for years on an imbalance between supply and demand. We’re had our bounce in copper. And our rally. Now are we seeing the emergence of a copper super cycle? I think the answer is yes. I’d draw your attention to reports on copper supply and demand from CRU Group and commodities trader Trafigura Group. The conclusion of both reports is that the world is looking at a massive shortfall in supply over the next decade. The potential shortfall could reach 10 million tons if no mines get built, according to commodities trader Trafigura Group. Closing such a gap would require building the equivalent of eight projects the size of BHP’s giant Escondida mine in Chile, the world’s largest copper mine. Enough copper projects are probably in the pipeline to ease copper support deiced between 2022 and 2025, Bloomberg calculates. But China’s State Reserve Bureau mopped up almost all of the excess supply that resulted from the pandemic slowdown in 2020. And that is likely to lead to two years of so of supply deficits in the short term. Which is why copper is trading near decade highs. Beyond that the industry confronts the long, long lead time to get a copper project into production. To meet the supply shortfall from 2025 to 2030 new mine projects should already be in development. But evidence of enough new projects to meet demand is scarce on the ground. To be sure, copper projects are in the pipeline. But mines are getting trickier and more expensive to build–which has made mining companies hesitant about committing to new projects until they see higher demand as a certainty post-pandemic. This scenario argues the current prices above $10,000 a metric ton have considerable market support. And that prices are likely to head even higher in the years to 2030. So much for the value (and inflation hedge) story. (The stock also currently pays a dividend of 3.48%. Find that from a bank these days.) But as with Deere there’s also a growth story. And it revolves around the transition to renewable energy. Alternative energy technologies use a lot of copper. A lot. Take electric vehicles, for example. According to a 2017 study by IDTechEx, commissioned by the International Copper Association, please note, a conventional gasoline-powered car requires 51 pounds of coper. A hybrid requires 88 pounds. An electric car requires 133 pounds. See the growth trend here? Southern Copper gets about 80% of its revenue from copper (and the rest from mining “by-products” such as gold) produced from its mines in Peru and Mexico.
These two picks bring the number of stocks and ETFs in the Millennial Portfolio to 13. My goal is 20 positions. You can find that portfolio on my subscription site, JubakAm.com.
