The global commodity market is on a roll. An expected inflationary environment in the United States and the rapid recovery of industrial activities have been driving commodity prices higher. In addition, with consumer spending steadily rising, primarily on the back of the recent federal rescue package and an improving job market, commodity prices have begun to spike. Consequently, commodity-related penny stocks have emerged as the most sought-after investments on Wall Street currently.
A penny stock (also known as a microcap or nano stock) refers to a small company’s stock that usually trades at less than $5. Many of these stocks are from upstart and struggling companies. However, given their low-price levels, investors often target the best of them for the higher-than-usual upside that they can offer.
While it’s true that penny stocks are quite volatile and are usually speculative investments that doesn’t mean that they do not sometimes represent promising opportunities. Acerinox, S.A. (ANIOY), ARC Resources Ltd. (AETUF), Alliance Resource Partners (ARLP), and Champion Iron Limited (CHPRF) have been blazing hot this year and we think could be high-risk, high-reward bets.
Acerinox, S.A. (ANIOY)
Madrid-based ANIOY manufactures, transforms, and markets stainless steel products globally. It is the most global company in the sector, with a presence on five continents, factories on four continents and customers in 81 countries. ANIOY operates primarily in two segments, its Stainless-Steel Division and High-Performance Alloy Division.
In February, ANIOY agreed on an €80 million ‘green’ loan linked to sustainable criteria with a Spanish multinational financial services company Banco Sabadell. The agreement stipulates that the margin of the loan will be linked to the evolution of the steel company’s relative emissions intensity and the frequency of occupational accidents. ANIOY has also been exploiting synergies through its acquisition of VDM Metals, a global leader in the development and manufacture of special nickel alloys and high-performance stainless steels, which it completed for €532 million in March 2020.
In the fourth quarter, ended December 31, ANIOY’s net sales totaled €1.22 billion, increasing 9% sequentially, due primarily to improved expectations for the economy, combined with rising commodity prices. Its melting production was 613,992 tons, 14% higher than the prior quarter because inventory levels across the supply chain led to improved activity and better working capital management. ANIOY reported €131 million of EBITDA, 50% higher than the previous quarter. However, its EPS came in at €0.07, versus €0.10 in the prior quarter.
The stainless-steel market’s recovery, which began in the middle of the fourth quarter, remains strong so far this year. Consequently, the stock has gained more than 80% over the past six months to close Friday’s trading session at $7.24. Furthermore, an order backlog at all its plants has improved and the company sees signs of improvements around high-performance alloys. Hence, ANIOY’s management expects the company’s EBITDA in the first quarter 2021 to be slightly higher than in the fourth quarter 2020.
ANIOY’s POWR Ratings are consistent with this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ANIOY has an A grade for Stability, and B for Growth and Momentum. The stock is currently ranked #5 in the 34-stock, A-rated Steel industry.
In total, we rate ANIOY on eight different levels. Beyond what we’ve stated above, we have also given ANIOY grades for Value, Stability, and Quality. Get all ANIOY’s ratings here.
ARC Resources Ltd. (AETUF)
AETUF acquires, develops, and explores for crude oil, natural gas, and natural gas liquid properties and assets. The company is Canada’s largest condensate producer, third-largest natural gas producer, and sixth-largest upstream energy company, and holds interests in the Montney properties located in Northeast British Columbia and Northern Alberta, and Cardium properties in the Pembina area of Alberta. As of December 31, AETUF had proved plus probable reserves of 929 million barrels of oil equivalent (boe).
On April 6, AETUF closed the strategic Montney combination with Seven Generations Energy Ltd.–a low supply-cost energy producer that generates strong returns from its liquids-rich Kakwa River Project in Northwest Alberta–to create the premier Montney producer and leader in responsible energy development.
AETUF generated $212.0 million in funds from operations during the fourth quarter of 2020, improving 47% sequentially. The company delivered 169,468 boe per day average daily production during the quarter, including 783 million cubic feet per day of natural gas, 15,554 barrels per day of crude oil, 14,715 barrels per day of condensate, and 8,678 barrels per day of natural gas liquids. Its production increased 7% from the prior quarter because the company maximized natural gas production through its core Montney facilities. As a result, its EPS came in at $0.34, a significant improvement from the $0.19 per share quarter-ago loss.
AETUF closed Friday’s trading session at 6.30, gaining 52.5% over the past year. The company delivered record annual production of 161,564 boe per day in 2020, leading to a 16% rise in average daily production for 2020 compared to the prior year. In fact, AETUF plans to deliver average daily production of 158,000 -per day and 165,000 boe per day in 2021. Management expects the demand for its products, especially natural gas, to outpace supply, thus providing pricing momentum in 2021.
It’s no surprise that AETUF has an overall A rating, which translates to Strong Buy in our POWR Ratings system. AETUF has an A grade for Growth, and B for both Momentum and Sentiment. It is further ranked #1 in the 92-stock Energy – Oil & Gas industry.
In addition to the POWR Ratings grades we’ve just highlighted, one can see the AETUF ratings for Value, Stability, and Quality here.
Alliance Resource Partners (ARLP)
ARLP is a diversified natural resource company that generates operating and royalty income from coal production and oil & gas mineral interests across the United States. The company operates seven underground mining complexes that produce a range of thermal and metallurgical coal with sulfur and heat contents. As of December 31, it had approximately 1.65 billion tons of proven and probable coal reserves and is currently the second largest coal producer in the Eastern United States.
The onset of the COVID-19 pandemic crushed demand for energy products, and the price war initiated by Saudi Arabia and Russia further lowered oil prices. In response to the struggling global commodity market, ARLP’s management suspended all the cash distributions to its shareholders in March 2020. However, with strengthening global economic activities and resulting improved energy demand, the company reinstated its quarterly distribution in the first quarter of 2021. ARLP currently has contract commitments for approximately 26.4 million tons in 2021.
ARLP’s revenues in the first quarter of 2021 declined by roughly 9% year-over-year to $47.9 million, driven by a 6% reduction in sales volume and a 3% decline in pricing. The company managed to sell 6.828 million tons of coal, 5.8% below its year-ago levels. In addition, weather-related transportation disruptions and an unplanned customer plant outage impacted its anticipated coal shipments during the quarter, contributing to a reduction in its top line. Its EPS came in at $0.19, representing a significant improvement from its $1.14 per share year-ago loss.
ARLP has returned 22.3% so far this year to close Friday’s trade at $5.48. In addition to exploring different value creating opportunities, such as adding a new Coal Royalties segment, the company’s coal operations efficiency initiatives continue to provide cost reduction benefits. In fact, improved coal market fundamentals and favorable weather-patterns this year has been supporting buying activity by both domestic and international customers, allowing ARLP to secure new commitments for the delivery of approximately 5.4 million tons through 2023.
ARLP’s strong prospects are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. ARLP has a grade of A for Quality, and B for both Growth and Sentiment. It is ranked #1 in the 11-stock, B-rated MLPs – Other industry.
Click here to see the additional POWR Ratings for ARLP (Value, Momentum and Stability).
Champion Iron Limited (CHPRF)
Australia-based CHPRK acquires , explores for, develops and produces iron ore deposits in North-Eastern Quebec. Its flagship projects include the Bloom Lake mine, consisting of BM877 mining lease and 53 mining claims in Canada, and the Consolidated Fire Lake North project in Northeastern Quebec.
On April 1, 2021, CHPRK completed the acquisition of the mining properties of the Kamistiatusset iron ore project, and certain related contracts pursuant to an asset purchase agreement among certain affiliates of the company and Deloitte Restructuring Inc. CHPRK agreed to a consideration for the acquisition consisting of $15 million in cash, the extinguishment of approximately $19.4 million in secured debt of Alderon and certain of its affiliates and an undertaking to make a finite production payment on a fixed amount of future iron ore concentrate production from the Project.
CHPRF’s operating activities for its fiscal fourth quarter, ended March 31, 2021 did not fail to impress the Street. The company mined and hauled 9.4 million tons of material during the quarter, improving 10% from the same period last year. This increase in material mined and hauled is attributable to the company’s ongoing mining equipment rebuilding program, which provided a higher equipment utilization rate and additional equipment availability. In fact, CHPRF produced more than 2 million wet metric tons (wmt) of high-grade 66.5% iron ore (Fe) concentrate for the three-month period, compared to 1.89 million wmt for the same period in 2020.
CHPRF reported a record annual production of 8 million wmt of high-grade 66.4% Fe concentrate for the fiscal year. Moreover, CHPRF is actively working on its Bloom Lake Phase II expansion project, which is expected to be completed by mid-2022. CHPRF has also been recently included in the S&P/ASX 200 Index, Australia’s preeminent benchmark index, which measures the performance of the 200 largest index-eligible stocks listed on the Australian Stock Exchange.
The stock has surged 63.5% over the past six months to close Friday’s trading session at $4.49. CHPRF might gain further momentum because the company is well-positioned to capitalize on rising global demand for high-grade iron ore. In addition, the company recently entered into an agreement to expand an existing long-term rail contract with Quebec North Shore and Labrador Railway to support expected Phase II production volumes.
It’s no surprise that CHPRF has an overall A rating, which translates to Strong Buy in our POWR Ratings system. CHPRF has a B grade for Growth, Momentum, and Quality. It is ranked #4 in the 57-stock Miners – Diversified industry.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the CHPRF ratings for Value, Stability, and Sentiment here.
Click here to check out our Industrial Sector Report for 2021
ANIOY shares were trading at $7.24 per share on Monday afternoon, up $0.19 (+2.70%). Year-to-date, ANIOY has gained 27.02%, versus a 12.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More…
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