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AstraZeneca’s (AZN) Blockbuster Drug Pipeline

Finding winners in the pharmaceutical sector is not an easy process. But it is potentially quite lucrative.
For the pharmaceutical companies themselves, the current environment for success is reminiscent of the Greek myth surrounding Sisyphus, whom the gods condemned to repeatedly roll a boulder up a hill—only to have it roll down again once he got it to the top—for all eternity.
Today’s pharmaceutical firms must use vast amounts of capital in search of a blockbuster drug, which can generate $1 billion or more in annual sales. But then, even when such a medicine is found, the benefits provided are fleeting: from the moment a drug makes it to market, the clock begins ticking on its patent exclusivity. Once this expires and generic copycats reach the market—typically within a decade or so—revenues for the original inevitably fall, and often quite rapidly.
Then, like Sisyphus, the companies climb the hill of developing blockbuster drugs again, investing anew in the whole risky and costly process of drug development.
If you are an investor in the sector, you want to focus on the companies that have drugs in their pipelines with blockbuster potential, as well as the funds necessary to propel them through several trial stages.

Since 2010, the global pharmaceutical sector has invested the equivalent of around one quarter of its revenues in drug development each year. The U.S. industry alone spent some $83 billion on R&D in 2019—when adjusted for inflation, that’s about 10 times what it spent in the 1980s!
So, which segments of the pharmaceutical industry (and which drug companies) are poised to come up with the next blockbuster drugs?
Precision Therapies
Recent advances in science are ushering in a new era of highly effective personalized medicines. So-called precision therapies are based on greater understanding of how diseases work on a molecular level. This translates to doctors being able to identify what treatments fit which patients, and why.
Precision therapies are tailored to fit specific groups of people. This means they will likely be highly effective. But can cutting-edge personalized medicines reach blockbuster drug status? The naysayers say the market size is too small…but they seem to forget that innovative drugs can command very high price tags.
Consider recent data from the drug price tracking service division of GoodRX (GDRX). It shows that, after 15 years on the market, the average drug with accelerated approval by the FDA underwent 15.4 price increases. Drugs subject to conventional approval saw 12.7 price increases in the same span of time.
Keeping an eye on the list of development-stage therapies expedited through the FDA’s approval processes can provide insight into which companies have potential blockbusters in the pipeline.
AstraZeneca (AZN)
One company that fits that profile is AstraZeneca (AZN), and here’s why it is so interesting…
The company specializes in one of the areas where personalized medicine is making great strides: oncology. It already has three blockbuster cancer drugs. Per Morningstar:
Overall, the company looks well positioned for growth with the recently launched cancer drugs carrying strong pricing power that should have an amplified impact on the bottom line. We expect the first-line lung cancer indication for Tagrisso combined with the likely gains in adjuvant lung cancer will drive peak sales above $9 billion annually. Also, cancer drug Imfinzi should gain share in Stage III lung cancer where treatment options are limited and the drug holds growing potential in other cancers. Additionally, BRCA-focused cancer drug Lynparza is well positioned to gain further market share in new indications.
And now, one of the company’s other treatments, Enhertu, is viewed by some as the next big thing. It has been granted five separate breakthrough therapy designations by the FDA: three for hard-to-treat types of breast cancer, and one designation each for lung and gastric cancers.
Enhertu is an antibody drug conjugate (ADC), a type of therapy that is designed to do minimal damage to healthy, non-cancerous cells. It works by attacking tumors that test positive for a protein called HER2, which is associated with worse disease outcomes.

Known as “biological missiles.” ADCs are part of the new generation of personalized cancer treatments that target tumors with specific features, or biomarkers. Some 12 ADCs have received regulatory approval to date, while more than 100 others are in various stages of development.
Wall Street analysts believe that Enhertu has the potential to become a key growth driver for AstraZeneca. Consensus estimates are that sales could reach $4.5 billion by 2026, up from a negligible level now.
AstraZeneca’s Bright Future
The company had a relatively late start on emerging from the industry patent cliff that largely started in 2012. But today, AstraZeneca’s strong lineup of next-generation drugs should easily offset sales lost to new generic competition.
Morningstar says: “…we project the majority of new drug sales will be supported in therapeutic areas with strong pricing power with a heavy focus on differentiated oncology drugs Tagrisso and Imfinzi, Lynparza and Calquence.”
Annual sales growth over the next five years should in the 8% to 10% range as new products offset patent losses. Profit margins will expand too as high margin personalized drugs, particularly in oncology, will represent a larger proportion of overall sales over the next five years.
The stock is a buy anywhere in the $60 to $65 range.
Read More from Investors Alley

About the Author
Tony Daltorio is a seasoned veteran of nearly all aspects of investing. From running his own advisory services to developing education materials to working with investors directly to help them achieve their long-term financial goals. Tony styles his investment strategy after on of the all-time best investors, Sir John Templeton, in that he always looks for growth, but at a reasonable price. Tony is a regular contributor for InvestorsAlley.com.

wine glass on restaurant table

2 Restaurant Stocks In Undervalued Territory

It’s been a challenging year thus far for the restaurant industry, with dollars typically allocated to entertainment and a Friday night out wrestling to steal priority from rising gas bills, elevated energy costs, and higher mortgage rates.
Some restaurants have resorted to discounting to drive traffic, while others have relied on menu innovation and limited-time offers vs. promotional activities to protect their already softening margins.
(Source: Twitter, ND Wealth Management, Steve Deppe)
Those brands that are the most out of touch have continued to raise prices at a double-digit pace to ensure they maintain margins, with Chipotle (CMG) being one such offender. While this is likely to protect margins in the interim and allow the company to meet earnings estimates, it could backfire over the medium-term, with loyal customers feeling taken advantage of after being hit with consistent menu price increases in a recessionary environment.
Although this has made it difficult to invest in the sector, a few names are doing a great job navigating the current environment, and following recent share price weakness, they’ve slipped into undervalued territory.

One is a new breakfast chain that’s bucking the negative traffic trends in the casual dining space and enjoying industry-leading retention due to a key competitive advantage. The other is a pizza chain that’s enjoying strong unit growth, and while it’s having a tough year, annual EPS is forecasted to hit new all-time highs in FY2023 and FY2024.
Let’s take a look below:
First Watch Restaurant Group (FWRG)
First Watch Restaurant Group (FWRG) is a brand with over 450 restaurants serving breakfast in the United States, with a unique model being open from just 7 AM to 2:30 PM.
This has allowed the company to evade the industry-wide staffing issues, with its team members able to maintain a work-life balance, which isn’t possible for most restaurant brands.
In addition to solid staffing metrics that led the industry average, the company released blowout results in Q2, reporting traffic growth of 8.1% vs. an industry that saw negative 4% traffic in the quarter.
This translated to 20% system-wide sales growth ($231.2MM) and 13.4% same-restaurant sales growth, which trounced analyst estimates. The only negative in the report was that commodity costs came in higher than expected, stealing the sales leverage and leading to a 400 basis point decline in restaurant operating profit.
That said, this is still a very respectable figure, and the contraction in margins was largely due to being so conservative with pricing since the pandemic began. With the benefit of an overdue 3.9% price increase in July, I expect much of this margin pressure to abate.
(Source: FASTGraphs.com)
Despite this incredible sales performance in a quarter where traffic has been anemic, First Watch trades at a very reasonable valuation, sitting at just 10x FY2023 cash flow estimates. This might appear steep at first glance, but this business is growing units at a double-digit pace, making it one of the fastest-growing brands sector-wide.
Importantly, this growth is supported by growing average unit volumes, solid margins, and supportive staff, de-risking the growth profile vs. other brands. So, if this weakness in the stock persists, I would view any pullbacks below $14.40 (9.3x FY2023 cash flow) as a buying opportunity.
Papa John’s International (PZZA)
Papa John’s International (PZZA) is a mid-cap pizza chain in the restaurant space, and the company just came off a huge year, reporting record annual earnings per share of $3.43, a 145% increase from the year-ago period.
This was driven by impressive same-store sales growth, opportunistic share buybacks, and double-digit unit growth, an impressive feat for a company with over 5,000 restaurants globally (5,650 restaurants in 50 countries as of year-end 2021).
However, the company’s phenomenal year pinned it up against tough year-over-year comps, having to lap 145% earnings growth in a macro environment that’s much trickier to navigate. While the softened Q2 results were largely out of the company’s control, they came in below what the market was looking for, with revenue of just $522.7, a 5% increase over the year-ago period.
Meanwhile, although comparable sales in North America remained positive at 0.90%, International comparable sales dipped deeply into negative territory at (-) 8.0%.
While this is undoubtedly an ugly headline number, it’s important to contextualize the two figures. Although comp sales were down on a consolidated basis and fell sharply internationally, Papa John’s two-year stacked same-restaurant sales are sitting at 6.1% and 13.2%, respectively, with International (13.2%) having to lap a 21.2% growth rate in Q2 2022.
These are solid figures, but the deceleration combined with inflationary pressures that hit earnings (quarterly EPS: $0.74 vs. $0.93) has put a severe dent in the stock.
(Source: FASTGraphs.com)
The good news is that this 42% correction has left PZZA trading well below its 10-year average earnings multiple of 35, and even if annual EPS sinks year-over-year, it will still be up over 120% vs. FY2020 levels. More importantly, it’s expected to hit new highs in FY2023 and FY2024 based on current estimates of $3.71 and $4.08, respectively.

Hence, I see this aberration in this strong earnings trend as a buying opportunity. That said, the ideal buy point for PZZA comes in at $77.00 or lower, where it would trade at ~21x FY2023 earnings estimates vs. what I believe to be a fair value of $110.00 per share, translating to a 30% discount to fair value.
While FWRG and PZZA may not be in low-risk buy zones, these are two names with strong growth that have loyal customer bases, boast strong unit growth, and are temporary victims of their success. This is because their strong FY2021 resulted in them being up against nearly insurmountable comps this year.
Still, I see the future as bright for both brands and meaningful earnings growth on the horizon post-2022, so I would view pullbacks below $14.50 on FWRG and $77.00 on PZZA as buying opportunities.
Taylor DartINO.com Contributor
Disclaimer: This article is the opinion of the contributor themselves. Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information in this writing.

ETFs – How They Help Build Wealth

The idea of pooling investment assets has been around for centuries. Mutual Funds first appeared in the 1920s. But it wasn’t until the 1980s that mutual funds became widely popular with mainstream investors.
In recent years, ETFs have taken off as an alternative to mutual funds.
An exchange-traded fund (ETF) is a “basket” of stocks, bonds, or other financial instruments that gives convenient exposure to a diverse range of assets. ETFs are an incredibly versatile tool that can track anything from a particular index, sector, or region to an individual commodity, a specific investment strategy, currencies, interest rates, volatility, or even another fund.
You can do about anything with them — hold a diversified portfolio, hedge, focus on a particular sector, or even profit in a bear market.
The most significant practical difference between mutual funds and ETFs is that ETFs can be bought and sold like individual stocks — and mutual funds cannot. Mutual funds can only be exchanged after the market closes and their Net Asset Value (NAV) is calculated. Shares of ETFs can be traded throughout regular market hours, like shares of stock.

Both mutual funds and ETFs have expense fees that can range from low to high. Mutual funds can have front or backend loads or redemption fees in addition to management fees.
ETFs that trade like shares have commissions to buy and sell. But some ETFs are so popular that brokers offer commission-free trading in them.
So Many Choices
The sheer number and variety of ETFs can be a bit mind-boggling. Over the last 20 years, we’ve seen just a couple hundred ETF offerings grow to more than 8,000 worldwide, encompassing more than 10 trillion in assets.
A surprising number of ETFs have failed. They started with an interesting focus (well, “interesting” to somebody) but failed to attract enough interest to remain viable. For this very reason, I avoid narrow niche ETFs that trade with low volume.
I eliminate many ETFs on poor liquidity alone. I’m not interested if there’s not much volume in a product. I don’t want to suffer high slippage from wide bid/ask spreads. I want to get in and out quickly and at fair prices.
To leverage or not to leverage?
Inverse and leveraged ETFs often use derivatives like options, futures, and short-term contracts to achieve 2x or 3x the daily change in the assets they’re intended to track.
These types of instruments have inherent time decay, and they tend to lose value over time, regardless of what happens in the index or benchmark that the ETF tracks. As a result, these products are best for very short holding periods or day trading.
Options on ETFs
Many ETFs have options (puts and calls) available. But even if the ETF itself trades with decent volume, that does not mean that the options meet my criteria for liquidity.
Sometimes I will use long options – puts or calls — if a clear directional move is in play. I also use many of my option premium selling strategies on popular ETFs. Just like with stocks, options can be used with ETFs for additional leverage, collecting premiums for income, and risk management.
An ETF Playlist
Here are some of my favorite ETFs and how I use them.
SPY, QQQ, IWM – Major index ETFs with huge participation. I use options strategies with these to collect premiums or profit from longer-term directional moves.
XLE, XLF, XHB, IYT, XLU, SMH – Sector Exposure. These can work well for directional trades in specific sectors. I like these sector plays as they can give a lot of protection against individual stock risk.
DBC, USO, UNG, WEAT, GLD, SLV, COPX, GDX, URA – Commodity Exposure. All of these can work well when the underlying commodities are appreciating. I tend to use these with option premium selling strategies such as covered calls and diagonal spreads.
TQQQ – Triple leveraged to the QQQ. This very popular ETF can work well to capture very short-term bullish moves in the Nasdaq 100 stocks.
SQQQ – This is the companion inverse ETF to TQQQ. It is triple-leveraged and inverse to QQQ. Long calls on SQQQ can work well to capture gains from a very short-term down move. Timing is everything in short-term trading, so I get in and out quickly, with trades lasting no more than a few days.

UUP – US Dollar Index. This can be a real winner when stocks are weak and the dollar is strong. Implied volatility on options is relatively low, so buying call options can work well if you catch a directional move. Using calls can give about 10x leverage; for example, a 3% increase in UUP might yield around a 33% gain for an in-the-money call option.
Technical Analysis
Whether an individual stock or an ETF, my answer for when to buy or sell is always based on price action. We only want to hold assets that are increasing or at least keeping their value while avoiding assets that are in decline.
And the toolset to evaluate price action is technical analysis. The same technical analysis we use for stocks works just as well for the more popular ETFs.
Learn more by visiting The Technical Traders!
Chris VermeulenTechnical Traders Ltd.
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation for their opinion.

3 Stocks to Sell if You’re Bearish on Crypto

The largest cryptocurrency, Bitcoin, topped the $20,000 barrier on Friday on optimistic market sentiments about a possible drop in inflation numbers. The second largest crypto, Ether, also rose on Friday.
However, additional interest rate hikes will likely constrict the economy, which is expected to create pressure on the relatively riskier crypto market. Experts believe cryptocurrencies will continue a downtrend amid the volatile economic backdrop.
Moreover, digital currencies might face heightened regulations in the future. Gary Gensler, the current SEC chair, stated that the Commodity Futures Trading Commission (CFTC) needs greater authority to oversee and regulate crypto non-security tokens and related intermediaries.
Moreover, with the much-anticipated Ether merge expected to occur soon, the crypto market might experience more volatility. Hence, the blockchain stocks Block, Inc. (SQ), Coinbase Global, Inc. (COIN), and Riot Blockchain, Inc. (RIOT) might be best avoided now.

Block, Inc. (SQ)
SQ engages in the creation of tools that enable sellers to accept card payments and provides reporting and analytics and next-day settlement. The company also provides hardware products.
On July 13, SQ subsidiary Afterpay and beauty retailer Sephora announced their partnership to enable customers to pay for U.S. beauty brands and products in four installments. However, the gains from this partnership might be stretched over a long period of time.
For the fiscal second quarter that ended June 30, SQ’s total net revenue decreased 5.9% year-over-year to $4.40 billion. Adjusted net income decreased 56.8% from the prior-year quarter to $110.74 million. Adjusted net income per share declined 63.3% from the same period the prior year to $0.18.
The consensus revenue estimate of $17.60 billion for the fiscal year 2022 indicates a 0.3% year-over-year decrease.
The stock has declined 70% over the past year and 54% year-to-date to close its last trading stock at $74.29.
SQ’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in this proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SQ has a Stability and Quality grade of D. In the 107-stock Financial Services (Enterprise) industry, SQ is ranked #91. The industry is rated F. Click here to learn more about POWR Ratings.
Coinbase Global, Inc. (COIN)
COIN offers financial infrastructure and technology for the global crypto economy. The company’s offerings include the primary financial account for retailers in the crypto space.
On September 8, Enthusiast Gaming Holdings Inc. (EGLX) announced its collaboration with COIN to introduce the company as its preferred infrastructure provider to power its Web3-enabled games portfolio. However, there might still be some time remaining before substantial gains can be realized from this venture.
COIN’s total revenue decreased 63.7% year-over-year to $808.33 million in the fiscal second quarter that ended June 30. Net income and net income per share attributable to common stockholders declined 168.1% and 177.6% from the prior-year period to a negative $1.09 billion and a negative $4.98.
Street EPS estimate for the fiscal quarter ending December 2022 of a negative $2.06 indicates a 162% year-over-year decrease. Likewise, Street revenue estimate for the same quarter of $752.68 million reflects a decline of 69.9% from the prior-year period.
Over the past year, the stock has declined 67.4% to close its last trading session at $80.87. It has declined 68% year-to-date.
It’s no surprise that COIN has an overall F rating, which translates to Strong Sell in the POWR Ratings system.
COIN has an F grade for Growth, Value, Stability, and Sentiment and a D for Quality. It is ranked #153 out of the 154 stocks in the Software – Application industry. The industry is rated F. Click here to learn more about POWR Ratings.
Riot Blockchain, Inc. (RIOT)
RIOT, with its subsidiaries, is engaged in cryptocurrency mining operations in North America. The company primarily focuses on Bitcoin mining with a large fleet of publicly-traded miners.
For the fiscal second quarter that ended June 30, RIOT’s total revenues increased 112.4% year-over-year to $72.95 million. However, its net income and net income per share came in at a negative $366.33 million and a negative $2.81, down 1,994.5% and 1,377.3% from the same period the prior year.
The consensus EPS estimate for the fiscal year 2022 of a negative $2.47 indicates a 2,987.5% year-over-year decrease.

The stock has declined 72.1% over the past year and 63% year-to-date to close its last trading session at $8.26.
RIOT’s bleak prospects are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in this proprietary rating system.
RIOT has an F grade for Stability, Sentiment, and Quality and a D for Value. In the 81-stock Technology – Services industry, it is ranked #79. The industry is rated D. Click here to learn more about POWR Ratings.

About the Author
Anushka Dutta is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. With a master’s degree in economics, she aims to help investors identify untapped investment opportunities by looking at the fundamental factors. Anushka is a regular contributor for StockNews.com.

Gold/Silver Ratio Shows S&P 500 Is On The Edge

It’s time to update the S&P 500 index chart as it emerged inch-perfect since the last update in July.
Source: TradingView
To refresh your memory, I kept the main paths untouched and added new crucial highlights.
The idea of the upcoming breakout of the Falling Wedge pattern (blue converging trendlines) was posted right on time on the Blog as it played out instantly. Indeed, the Bullish Divergence of the RSI indicator with the price chart played out as planned supporting the breakup of the pattern’s resistance.

The majority of readers got it right choosing the red path as a primary scenario. The price action has been amazingly accurate in the 61.8% Fibonacci retracement area where the price failed to overcome the barrier and reversed to the downside from the minor top of $4,325 following the red zigzag.
I added the 52-week simple moving average (purple) to show you how strong the double resistance was at the $4,347-$4,349 level.
The next support is located in the valley in June at $3,637.
After the minor top has been established, we can make a calculated projection of the downside target. It is located at $3,143, where the current leg down would travel the same distance as the previous leg down.
This time, I also added the time target (orange) based on the earlier move, which took 23 bars to unfold. It falls on the end of January 2023. The Fed might take a break lifting the interest rate then. More often than not the time it takes second leg to emerge doesn’t match with the initial move. However, it is still good to have this benchmark.
The $4,325 mark has turned to be a resistance now as the index could still build a more complex structure to the upside reviving the green path.

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Now let me reveal the reason behind the title of this post in the next chart.
Source: TradingView
This is this comparison chart of the gold/silver ratio (red) and the S&P 500 index (blue). The idea is simple; the red line shows the risk-off mode when it moves up as safe-haven gold becomes more valuable than the industrial silver. The risk-on mode is active in the opposite direction and the S&P 500 index starts to grow.
There is a long period of unconventional monetary policy that interrupted the link when both gold/silver ratio and the index has been growing. However, we could still distinct several local areas where this opposite correlation works very well in spite of the large uptrend. Since 2020, this link is back to normal with visible crossovers and opposite extremes.

The S&P 500 index is clearly on the edge now as it has been very close to crossing the red line down lately.
We can see that the gold/silver ratio has a lot of room for further growth to retest the all-time high of 113 oz. It could be a 24% rise of the ratio.
The risk-off mode would reach its climax then putting a huge pressure on the stock market. The relevant drop of 24% in the S&P 500 could hit the $3,090 mark, which coincides with the downside target calculated in the first chart of the index above.

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Intelligent trades!
Aibek BurabayevINO.com Contributor
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Natural Gas Opportunity For Savvy Investors

On August 31st, Russia’s state-owned energy company, Gazprom, stopped the flow of natural gas in the Nord Stream 1 pipeline. The pipeline ran from Russia to Germany and was scheduled to be discontinued from August 31st until September 3rd. But September 3rd came and went, and the pipeline remained shut down.
At first, an oil leak was reported, causing the pipeline to remain shut down. But then, it was evident that the shutdown was in retaliation to the sanctions the West had implemented against Russia due to the war in Ukraine.
Many experts predict the economic pain in Europe will increase as the cold weather sets in across the continent. Some have gone as far as to say that the economic pain will be felt in both the coming winter and next winter, 2023-2024. Some are even saying that energy rationing will be required to ensure everyone has enough natural gas for heating.
However, many in Europe have been planning for this to occur for some time. Russia had reduced the pipeline operating volume to just 20% of what it could provide.

This was far less than what Europe comfortably needed to make it through winter. Thus, the European Union and other entities have been working on replacing the lost volume through other means. So while the pipeline shutdown is not ideal, it was predicted to happen at some point this winter.
Many are saying Russia is attempting to weaponize its gas supply to hurt the EU and other nations in an attempt to have Western countries drop or reduce sanctions against Russia.
At this time, there is no sign that either the EU or Russia will bend to the will of the other, and it is likely that we will continue to see elevated oil and gas prices in Europe. Thus, comes the opportunity for savvy investors.
I want to note that I am not condoning an attempt to profit from someone else’s pain and suffering. I want to point out the high likelihood that natural gas prices will likely increase this winter as the EU finds ways to replace the gas they acquired through the Nord Stream 1 pipeline.
With that all said, let’s look at a few of the options you have if you want to invest with the idea that gas prices will rise this winter.
The best way to invest in natural gas is with Exchange Traded Funds. Something like the United States Natural Gas Fund LP (UNG) or the United States 12 Month Natural Gas Fund LP (UNL). These funds buy futures contracts on natural gas.
UNG holds near-term monthly futures while UNL holds the 12 nearest months contracts. Owning the futures contracts gives the ETFs exposure to the price movements of the commodity. Gas prices go higher; the contracts are worth more. But, the same happens if gas prices go lower. UNG and UNL will essentially move at a 1X leveraged amount to the gas price before fees and contango occur.

The Proshares Ultra Bloomberg Natural Gas ETF (BOIL) will give you a 2X daily return on natural gas price movement. That means if natural gas increases by 1%, UNG and UNL will move about 1%. But, BOIL will move by 2%.
Finally, if you feel like the price of natural gas is overinflated, you could buy the ProShares UltraShort Bloomberg Natural Gas ETF (KOLD), which will short the price of natural gas. So, if gas falls by 1%, KOLD will actually increase by 1%. But again, the opposite is true, and if gas prices rise by 1%, KOLD will lose 1% of its value.
Now before you buy a natural gas ETF, it should be noted that these funds, besides KOLD, are all up a lot in 2022. This is likely because many investors were expecting Russia to cut off its supply eventually. However, that still doesn’t mean that natural gas prices can’t or won’t go even higher than their current levels.
Matt ThalmanINO.com ContributorFollow me on Twitter @mthalman5513
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

After The Student Loan Bailout

Should President Biden’s recent pay-for-votes forgiveness of student loans make you nervous if you own government-guaranteed securities?
Although it seems highly unlikely, the student loan giveaway could create a slippery slope that leads next to mortgage forgiveness for veterans or some other protected or politically favored class, or some other form of federal debt relief. 
In that event, what would happen to so-called government-guaranteed securities backed by VA mortgages if the president declared that some or all of those loans were forgiven? Why not FHA loans, that are made to many of the same people who have student loans, i.e., those who supposedly have trouble paying back their loans or getting them in the first place because they have marginal credit or can’t afford a large down payment.
It wasn’t very long ago that Fannie Mae and Freddie Mac, the twin secondary mortgage agencies, failed and were taken over by the government, leaving equity investors with shares worth next to nothing (both are currently trading at about 50 cents a share on the pink sheets).

Before they went bust during the global financial crisis, it was widely assumed that Fannie and Freddie were backed by the full faith and credit of the U.S. government, which turned out not to be the case (as that great legal scholar Felix Unger reminds us).
Assuredly, mortgages backed by the VA and FHA are different animals than those issued by Fannie and Freddie, but that doesn’t mean they’re invulnerable (they historically have high default rates). With interest rates on mortgages now north of 5% and a recession possibly looming, how long will it be before pressure grows on Biden to give the weakest homeowners a break?
Now it doesn’t seem so far-fetched, does it? Today student loans, tomorrow home mortgages. How far do we want to take this? 
In the past we’ve heard some people say we should weaponize Treasury securities against our foreign adversaries, such as the Chinese, who own so much of our debt. Does this now become a little less of a fantasy and more of a possibility, as our relationship with Beijing continues to deteriorate and the president is in such a forgiving mood?
The actual dollar cost of Biden’s student loan giveaway has yet to be calculated, but it’s safe to say it’s a lot more than he and his defenders claim. Some analysts say the total cost will be about $1 trillion, which certainly seems reasonable. It could certainly add up to a lot more, if and when those saps who are still repaying their loans wake up and realize that they have indeed been duped and demand forgiveness, too, or simply stop paying.
Politicians love to play fast and loose with debt, as long as it isn’t owed to them. Since the global financial crisis of 2008, government officials and politicians on both the left and the right have heartily endorsed Modern Monetary Theory as a way to solve today’s economic problems by simply wishing them away. Have the government issue massive amounts of debt backed only partially by tax receipts, with the rest purchased by the Federal Reserve, and all will be well. Now they’re writing a new chapter of that theory, which involves simply erasing parts of that debt by the mere stroke of the chief executive’s pen.
One important thing missing from the MMT playbook is taxes. According to the theory, the government can continue to spend money and run massive deficits until inflation is created, at which point it should turn off the spigots and raise taxes and put everything back into equilibrium. But as we know, no or little tax increases are on the horizon, certainly not in an election year, despite federal debt of more than $30 trillion.
The current administration likes to blame inflation on everything but out-of-control government fiscal spending. Rather, Vladimir Putin, supply chains, greedy corporations, etc., are to blame. Fighting inflation, the president tells us, is the sole domain of the Federal Reserve, and he will do nothing to threaten its independence. Except he does want the Fed to use its bank regulatory powers to decide which industries get access to funds (solar energy, electric vehicles) and which don’t (oil and gas producers, gun manufacturers).

Which leads us into the next potential mine field. If things go wrong for companies in the most favored categories, will the government or the Fed step in with even more subsidies or some kind of debt relief?
These are the risks we run when the government plays favorites in an otherwise free economy. Hopefully, most of these scenarios will never come to pass, but as the student loan bailout should teach us, anything can happen.
George YacikINO.com Contributor
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

gold bars

Buying Opportunity For These Two Gold Miners

While the S&P-500 (SPY) has taken a beating over the past month, leaving the index 18% from its highs, the damage inflicted has been tame relative to the shellacking we’ve seen in the Gold Miners Index (GDX).
Not only has the GDX’s decline been double that of the S&P-500, but the most recent drop is one of the worst in a decade in terms of velocity. This is because the GDX was down 44% in just 95 trading days last Friday, translating to an annualized decline of 79%.
(Source: Daily Sentiment Index Data, Author’s Chart)
This decline, coupled with muted 10-year returns since the peak of the last bull market cycle (2011), and lifeless 2-year returns since the August 2020 peak, has led to despair in the sector, with many investors not even interested in looking at their portfolios if they hold precious metals stocks.
I believe this has bred conditions for a violent rally to the upside, especially with sentiment for gold (GLD) sitting at its lowest levels in 18 months, as most investors have also given up on the metal.

In this update, we’ll look at two high-quality miners that have been thrown out with the proverbial bathwater:
Agnico Eagle Mines (AEM)
Agnico Eagle Mines (AEM) is the world’s 3rd largest gold producer, on track to produce ~3.3 million ounces of gold in 2022 from more than ten mines globally.
The major differentiator for the company relative to its peers is that it operates out of some of the safest jurisdictions globally (Canada, Australia, Finland) and boasts a margin profile that would make most producers salivate.
(Source: Company Presentation)
This is evidenced by its ~$1,010/oz operating costs in FY2022, giving the company 42% margins even at a $1,725/oz gold price. This figure compares very favorably to the industry average, with margins sitting closer to ~25% across a basket of 80 producers.
However, the other large differentiator that can’t be overstated is the company’s development pipeline and ability to grow production from existing mines. This is a big deal in an inflationary environment, and I would not be surprised to see AEM increase production to 4.1 million ounces by 2029.
This may not seem significant to investors unfamiliar with the sector, but when it comes to million-ounce producers, even holding the line on production is an achievement, given that grades are declining at most mines.
Just as importantly, AEM recently joined forces with another major producer in a merger of equals, projected to give it a benefit of $40/oz or more from synergies. So, while many producers are struggling to hold the line on margins, AEM should actually see its costs decline year-over-year ($975/oz vs. $1,010/oz).
(Source: FASTGraphs.com)
Agnico’s steadily rising production and lower costs will allow it to grow annual cash flow per share and EPS even in a flat gold price environment. In a rising gold price environment, I would not be surprised to see cash flow per share increase to $6.50 in 2024.
However, despite this key differentiator and the fact that it’s more diversified after adding three new mines following its merger, the stock trades at barely half its historical cash flow multiple. In fact, as of this week, AEM sits at 7.3x FY2023 cash flow (15-year average: 13.7x).
Given this deep discount to fair value, I see AEM as a rare mix of growth and value.
Osisko Gold Royalties (OR)
While Agnico Eagle is cheap and one of the most attractively priced names, especially given that investors are being paid to wait (~3.9% dividend yield), one small-cap gold name is as mispriced, if not more mispriced. This stock is Osisko Gold Royalties (OR), a $1.8BB market cap royalty/streaming company.
For those unfamiliar, royalty/streaming companies are a much lower-risk way to gain exposure to precious metals, given that they finance projects and mines up front and collect a portion of the sales from the asset over its mine life. The result is that, unlike producers, they are inflation-resistant and not subject to rising labor costs, materials costs, and energy prices.
In a sector with multiple royalty/streaming stocks to choose from, Osisko Gold Royalties stands out for several reasons.
The first is that the company has the #2 growth profile in the sector, expecting to grow annual attributable production from 80,000 gold-equivalent ounces [GEOs] in FY2021 to 135,000 GEOs in FY2026. This means that even if gold and silver prices go sideways at $1,750/oz, its revenue will increase from $160MM in FY2021 to $236MM in FY2026, an 8.1% compound annual sales growth rate. If gold prices return to their highs, this growth rate jumps to 11.5%, giving OR one of the highest growth rates sector-wide.
The other key differentiator for the company is that its royalties/streams are in some of the safest jurisdictions globally, meaning that it’s not subject to repatriation risks in Kyrgyzstan, violence in Mali and Burkina Faso, and a shift to more leftist policies in South America. This makes the company’s growth much lower risk and lets investors sleep well at night with the comfort that the mines it has royalties on will remain in production without any negative surprises.
Despite this robust growth profile with an 8.1% revenue CAGR at conservative gold prices, and assuming the company does no additional deals on producing assets over the next four years OR trades at a massive discount to its peer group.
This is evidenced by OR being valued at just 0.80x P/NAV and less than 10x FY2024 cash flow estimates or ~8x cash flow after subtracting out its investment portfolio. The current valuation figure is 50% below the historical average of more than ~20x cash flow and 1.60x P/NAV or higher for the larger royalty/streamers.
As new assets come online and production grows from existing assets, I see the potential for a significant re-rating to more than $18.00 per share.

To summarize, I see the stock as a steal below $10.00 per share, and I believe the current valuation can be justified by just its six largest royalty/streaming assets (Malartic, Eagle, Mantos, Windfall, Island, Renard) and its investment portfolio, let alone its more than 100+ other royalty/streaming assets it’s not receiving any credit for in a market where fundamentals have gone out the window.
(Source: Osisko Gold Royalties Presentation)
With the gold sector being the most hated it’s been in years, it’s easy to shy away from the opportunities, especially with many producers seeing a margin crunch.
However, these opportunities lead to forced selling of the best names, and OR and AEM are practically being given away due to despondency sector-wide. Hence, I see this correction in both names as a buying opportunity.
Disclosure: I am long OR, AEM
Taylor DartINO.com Contributor
Disclaimer: This article is the opinion of the contributor themselves. Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information in this writing. Given the volatility in the precious metals sector, position sizing is critical, so when buying small-cap precious metals stocks, position sizes should be limited to 5% or less of one’s portfolio.

Bears Smashed Silver, Is Gold Next?

Last month I was wondering “Is It A Trap?” for the top precious metals, referring to the short term bounce that we have been observing.
Bears have smashed the silver price badly below the former valley. Hence, I would start the update with its monthly chart below.
Source: TradingView
Silver futures topped around the $21 mark the same day the previous update was posted in the middle of August and then it dropped like a rock to the downside.
The price already drills down the largest Volume Profile (orange) support as it entered the $16-$18 range. The peak volume was registered at the $17 level in the monthly chart. Below $16 the support weakens and further down below $14 there is a volume support gap.

I built the black downtrend with a red mid-channel in this big chart above. We could visually distinguish the first drop (large left red down arrow) from 2011 to 2015. The following huge corrective structure emerged during 2015-2021. Now the market could build the second leg down. The mid-channel support is located at $13.5, right below the above mentioned lower volume area.
We can mark the lower supports for the future. The Flash-Crash valley is at $11.6 fortified with the all-in sustaining costs located at $10.9. The valley of the distant 1991 at $3.5 is the next possible support.
Bulls should push the price outside of the downtrend beyond $27 to turn the tables.

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Before we get down to the gold futures chart, I would like to update the U.S. 10-year Treasury yield (10Y) chart posted last March in the “Wake-Up Call For Gold” post. That post was prophetic for several markets as thoughts shared then start to play out now.
The 10Y impacts the gold price strongly as we saw earlier, therefore it is crucial to demonstrate the big picture.
Source: TradingView
The 10Y had been moving down within a huge red downtrend since 1994. There were two false breaks: the minor breakout in 2007 and the larger one in 2018. The mid-channel (red dashed) started to act as a strong support in 2015 as the yield never crossed it down since then. The last episode was in 2020 when this support rejected the huge drop and the price reversed to the upside.
The 10Y eyes to surpass the current resistance based on the former top of 3.25%. There was a puncture of this level earlier this summer, however the price dipped back down below and it fueled the recent short term bounce of the gold price.

The next barrier is at 5.32% or over 200 basis points higher. The Fed is still under pressure over inflation. Last week, Cleveland Federal Reserve Bank President Loretta Mester (FOMC member) said: “My current view is that it will be necessary to move the fed funds rate up to somewhat above 4 percent by early next year and hold it there; I do not anticipate the Fed cutting the fed funds rate target next year.” In this context, the next hurdle for 10Y above 5% looks achievable.
The more efficient the fight with inflation the worse it is for precious metals acting as an inflation hedge.

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The gold futures chart is the next.
Source: TradingView
There are three things in the chart that instantly catch the eye. The 10Y (gray) and the gold futures price move in sync in the opposite direction – as soon as yield reversed up the gold dropped. The second thing is the accurate price action on the 52-week simple moving average (purple) – the growth of the price has stalled right there. And the last observation is the Volume Profile (orange) – the price couldn’t overcome the large volume area.
The gold futures price has dropped deeply, but is still above the black trendline support and the former valley of $1,678. The momentum of the truth is very close both for gold and for 10Y as they approach the barriers simultaneously.
The price is already in the volume gap area as no significant levels are seen until the nearest support of $1,500. Earlier, your largest bet was that $1,500 will hold. Another $200 down and the price will reach the large volume area at $1,300. The die-hard support is located in the valley of 2015 at $1,045 where the possible large sideways consolidation could be completed.

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Intelligent trades!
Aibek BurabayevINO.com Contributor
Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

sale cards on beige background

Chart Spotlight: Dollar General (DG)

Investors may want to keep an eye on discount retailers, like Dollar General (DG).
For one, the latest pullback may be a great buy opportunity.
If you take a look at this chart, you’ll notice that Williams’ %R, Fast Stochastics, and RSI are all starting to pivot well off oversold conditions. With patience, I’d like to see the Dollar General stock retest $260 resistance, near-term from $241.65 support.

Source: MarketClub
Two, while other major retailers take a hit with inflation, Dollar General is rising because of inflation. In fact, we can see that with the company’s recent earnings report. Not only did Dollar General report second quarter EPS of $2.98, which was better than the expected $2.94 a share, sales were up to $9.4 billion, same-store sales were up 4.6% as compared to expectations for 3.9%. The company even increased its same-store sales forecast to a range of 4% to 4.5% for the fiscal year, from a prior call for 3% to 3.5%.
Three, wealthier people are now shopping at dollar stores because of inflation.
According to Business Insider, Todd Vasos, CEO of Dollar General, said on a call with analysts that the store saw a rise in higher-income households shopping there, “which we believe reflects more consumers choosing Dollar General as they seek value.”
Plus, we have to realize consumers are “trying to make ends meet, and when you have limited funds in your wallet, the dollar stores provide the ability to do that,” added Joseph Feldman, a senior analyst at Telsey Advisory Group, as quoted by The New York Times.
In addition, analysts seem to like the DG stock, as well. Guggenheim analyst John Heinbockel reiterated a buy on the stock. Piper Sandler raised its price target on DG to $273 from $265. Raymond James raised its target price to $285 from $160. Morgan Stanley raised its target to $270 from $250. Deutsche Bank says Dollar General is one of the few stable retailers.  

Plus, Dollar General will also pay a dividend shortly. On August 23, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.55 per share on the Company’s common stock, payable on or before October 18, 2022 to shareholders of record on October 4, 2022. 
All things considered, investors may want to use recent DG weakness as an opportunity.
Ian CooperINO.com Contributor
The above analysis of Dollar General (DG) was provided by financial writer Ian Cooper. Ian Cooper is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Ian Cooper expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.