I just finished reading the entire BLS employment report for April and, man, that was nasty. I get it, though, even if it may often seem that I don't. There was nothing in that report to suggest an economic "boom" of any kind is occurring in the USA. So, no reason to sell bonds, and as interest rates fall, the Nasdaq rises. Same calculus that we have seen the last few months so I cannot say I am surprised by today's market action. I actually closed all my shorts yesterday afternoon because I just didn't want to be burdened with a market moving on stale data.
But stagflation was again the name of the game in the report. Average hourly earnings increased by 21 cents to $30.17 and the BLS in its typically understated style noted:
The data for April suggest that the rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages.
Thank you, unnamed government functionary, Captain Obvious.
So, how to play stagflation? Well, for goodness sake, buy resource names. Exxon (XOM) is making me (and my clients) happy after years of sadness -- and still, crucially for my strategy, paying the $0.87 quarterly dividend -- but what else is out there other than oil majors? The thing about resource names is that they come in all sizes. These companies will never be viewed through a "tech" lens -- or be accorded tech-like earnings multiples -- but the real upside aside from dividends, in my opinion, comes from companies that adopt the BASF (BFFAF) motto (I also like BASF itself here): we don't make the products you buy, we make the products you buy better.
That brings me back to a name I have mentioned in several (RM) columns, Nano One Materials (NNOMF) . I am spending the vast majority of my time on resource names now, which naturally leads me to the Toronto Stock Exchange and its secondary board, the TSX-V. But the intriguing thing about Nano is that it offers technology instead of the materials themselves. To be sure there are intriguing names exploiting and producing now-in-demand materials like lithium, graphite and nickel, as the electrification of the powertrain, especially in BEV batteries themselves, makes long-discarded mines "hot" again. TSX-V is full of them. I will be writing more about them in future (RM) columns.
But, instead of a huge open pit in New Brunswick, Nano has a bunch of really, really, really smart engineers working in Burnaby, British Columbia. The industry has noticed, but in Nano's case, it is actually three distinct industries. Nano this week announced a relationship with Brazilian mining giant CBMM, which dominates the world's supply of niobium, an already important material for specialized steel production, and a potentially important material in the coating of battery cathode materials, Nano's specialty.
Two weeks ago, Nano reported the advancement of joint development work with an Asian cathode producer, and I would classify this as midstream. This project is designed to develop and commercialize cathode materials for lithium-nickel-managanese oxide (LNMO) battery structures using Nano's patented One-Pot materials coating process.
Finally, on the downstream side, Nano has announced relationships for evaluation and benchmark agreements for Nano's proprietary cathode materials for use in BEVs with Volkswagen (VLKAF) and an "American-based multinational auto manufacturer," whose identity is covered by confidentiality agreements. VW's Power Day on March 15th was a jaw-dropping display of that company's strength and global reach now being applied to EVs and electric powertrains. Also, in conjunction with its first quarter earnings release, VW announced yesterday that it had delivered about 60,000 pure BEVs globally in the first quarter, a sign that Herbert Diess is coming after Tesla's (TSLA) Elon Musk. That's interesting to me as an old auto industry analyst, and also as downstream as it gets.
JNano One is still in pre-revenue mode, and valuing emerging companies is always challenging. But I am happy to be onboard with Nano's CEO, Dan Blondal, and his team as they use proprietary technology to advance solutions to the materials supply and transportation issues that plague electric vehicle batteries.
Innovation will always be the ultimate protection against stagflation. Make sure your portfolio has exposure to companies that are truly innovating.