Power to the people? Power prices can drive shares as well
WEEKLY MARKET REPORT
If there is one certainty in Australian life at the moment it is that electricity and gas bills will continue to rise.
There is a furious and very political debate about why those bills keep going up but from an investment point of view the actual reason doesn’t really matter.
It could be due to renewable energy subsidies, gold plated networks, a loss of cheap baseload coal generation, regulatory failures, rising gas prices or a mixture of all of these factors and more.
How to hedge those rising bills
One interesting strategy for hedging those rising bills is to own shares in the utility companies that send out the bills.
It is similar to the approach a steelmaker might take in hedging against the rising price of iron ore by buying shares in iron ore producers.
That way if raw material prices rise too far, the steelmaker gets the benefit of higher iron ore producer share prices to offset the impact on their own profits.
Utilities index has been strong
Indeed, if you look at the utilities index, the past year has been a great time to run this strategy.
The utilities index has been one of the better performers on the Australian Securities Exchange in the last year with a performance of 16.06 per cent.
The only better sectors have been information technology at 25.78 per cent and health care at 25.16 per cent.
Blue sky starting to perform
Interestingly all three are fairly defensive sectors with strong and stable cash flows, which is probably what you would expect in the early days of a rising market before the “frothier’’ blue sky sectors start to take the lead.
There are signs that blue sky is starting to get some traction though, with an absolutely stellar performance from the ASX’s cannabis stocks in the past week.
Interest rates and wages staying low
One bill that doesn’t look like rising quite yet is the interest bill, with the Reserve Bank board suggesting that rates could stay low for longer than expected due to continuing low wages growth.
That is not such a bad thing for large sections of the share market with lower wages and interest rates improving profits.
Cannabis stocks soar
It has been an eventful week in the small cap space, with plenty of really strong share price rises in response to some excellent announcements. Especially the stocks in the cannabis space, with many flying high.
AusCann (ASX: AC8)
Industry heavyweight AusCann shot up after it announced its Chilean joint venture had won a second cultivation licence. With the initial crop producing over 400kg of harvest.
Cann Group (ASX: CAN)
Cann Group had its annual meeting and reassured shareholders that it is on track to supply Australian and eventually offshore patients with medicinal cannabis.
MMJ Phytotech (ASX: MMJ)
Shares is MMJ Phytotech leapt 29 per cent this week after it revealed its 59 per cent owned Canadian investment Harvest one was buying a property to expand production capacity and speed to market and was raising $17.5 million in convertible notes.
EVE Investments (ASX: EVE)
It wasn’t just cannabis producers that were feeling the investment love.
EVE Investments shares rocketed 83 per cent to 1.1c each after it announced it was getting into hemp honey by buying half of honey producer Meluka Health.
Meluka claims it has made Australia’s first 100 per cent organic Hemp Seed Honey.
Queensland Bauxite (ASX: QBL)
Queensland Bauxite shares jumped by more than 86 per cent this week after its Medical Cannabis Ltd bought a controlling stake in a hemp factory, Hemp Hulling Co. Earning a speeding ticket from the ASX along the way.
Stemcell United (ASX: SCU)
Stemcell United has been far from shabby, also earning an ASX issued speeding ticket after their stock prices tripled off of no news.
The Hydroponics Company (ASX: THC)
The most notable performer has been The Hydroponics company with its memorable ASX code ‘THC’ which has more than quadrupled. This week it brought in a new chief commercial officer and has done a deal with Israeli BOL Pharma to supply it with medicinal cannabis products for Australia, while it develops in-house medicinal cannabis strains in Australia.
Botanix Pharma (ASX: BOT)
Medicinal cannabis research companies were also rising this week with Botanix Pharma enrolling its first patients in a dermatitis study to test a new synthetic cannabidiol treatment for severe eczema.
MedLab Clinical (ASX: MDC)
MedLab Clinical announced that their cannabis pain medications were on the way for 2018, with MedLab supplying oncology patients in a clinical trial from February.
MGC Pharmaceuticals (ASX: MXC)
MGC Pharmaceuticals has recently signed a deal with distributor HL Pharma to introduce its epilepsy product, CannEpil, to the Australian market and has signed off on $1 million sales of cannabidiol extract to European distributor Mabsut Life. They were rewarded with a 35 per cent bounce this week.
Cannpal (ASX: CP1)
Cannpal has been granted an import licence so it can start treating companion animals with cannabis drugs.
Zelda Therapeutics (ASX: ZLD)
Zelda Therapeutics performed strongly and replied to a speeding ticket by saying that it was aware of positive research reports and was continuing discussions around clinical trials.
Creso Pharma (ASX: CPH)
A busy week for Creso Pharma which teamed up with China-based hemp producer Zhejiang Kingdom Creative and then signed a deal with Health House International to import and distribute the company’s medicinal-cannabis pain management lozenges to pharmacies throughout Australia.
Resource explorers making news
The mining and resources sector also saw some stand out results with lithium and cobalt remaining hot as the new energy future creeps closer.
Northern Cobalt (ASX: N27)
Northern Cobalt was a good example, reporting that it had struck shallow, wide cobalt grading up to 2.13 per cent at its Stanton deposit, which is part of the company’s Wollogorang cobalt project in the Northern Territory.
Although only early drill results are in, it looks like Northern Cobalt is on track to achieve its aim of upgrading the existing inferred resource of 500,000 tonnes grading 0.17 per cent cobalt, 0.09 per cent nickel, and 0.11 per cent copper.
It will be interesting to also keep an eye on how the metallurgy of the deposit proceeds and more information for the scoping study is assembled as the rest of the drill results come to hand.
With much of the world’s cobalt sourced from the less than stable Democratic Republic of Congo and cobalt prices on the rise due to the electric vehicle boom, it is little wonder that Northern Cobalt has caught the eye of investors.
Anson Resources (ASX: ASN)
Lithium explorer Anson Resources is another stock doing well on the lithium battery revolution with news that it has been granted all necessary permits to begin drilling at its Paradox lithium brine project in the United States.
After the final green light from the US Bureau of Land Management, Anson I now planning to start drilling before the end of the year.
The drilling program comes after Anson announced a share placement with Zhongfan Group that raised $1.76 million.
Anson also has three memoranda of understanding with interested parties in China: Link Data Technologies in Beijing, Far East First New Energy Co in Jiangxi and CBAK Power Battery Co in Dalian.
Argosy Minerals (ASX: AGY)
Another lithium brine player Argosy Minerals had some good results with exploration at its Rincon project in Argentina producing lithium averaging between 400 milligrams per litre and close to 500mg/l.
Better still, deeper drilling is showing greater brine bearing thickness than previously assumed, with a JORC-compliant resource estimate scheduled for release in the first three months of 2018.
Argosy has completed due diligence and will proceed with its Mina Tincal tenement acquisition which will greatly boost the company’s lithium brine project area and speed up expanded production.
St George Mining (ASX: SGQ)
It was a great week for shares in nickel and gold focused explorer St George Mining after it hit 17 metres of nickel-copper sulphides while drilling at the Mt Alexander project in central Western Australia.
The intersection occurred at 37.5 metres, which was drilled within a large electromagnetic anomaly identified at the Stricklands prospect.
The results have improved confidence in the resource potential of Mt Alexander and further results will come from a downhole electromagnetic survey.
The Mt Alexander project lies 120 kilometres south-southwest of the Agnew-Wiluna belt in central Western Australia and covers four granted exploration licences.
Jervois Mining (ASX: JRV)
Another cobalt-nickel player, Jervois Mining continued its great run after a reassessment of its flagship Young cobalt-nickel project in New South Wales resulted in a resource upgrade, which includes cobalt grading up to 0.12 per cent.
JORC compliant inferred resources for the project now sit at 167.8 million tonnes grading 0.59 per cent nickel and 0.06 per cent cobalt using a 0.6 per cent nickel equivalent cut off.
The week ahead
A busy week of economic announcements will keep traders busy this week.
Here in Australia there are a host of real estate figures released including new home sales, building approvals and home prices while a quarterly read on private capital expenditure will feed into predictions for GDP numbers.
It is a big week also in the United States, with GDP numbers set to confirm how the economic expansion in progressing while the Trump tax plan heads for a pivotal vote in the US Senate.
Signs that the tax package is looking likely to happen would bolster the buoyant US market but of course any signs it is in trouble could be negative.