Author: Taylor Dart

Gold Miners Index Starting The Year Strong

Posted on by Taylor Dart

2022 was a year to forget for most sectors and certainly the major market averages, with the S&P 500 (SPY) declining 19% for the year and the Nasdaq Composite suffering an even more disappointing 33% loss.

While most investors certainly didn’t have the Gold Miners Index (GDX) in their cards to be an outperformer in 2022 after it found itself down 30% for the year in October with one quarter to go, the sector managed to recover and has started off the new year strong as well.

The strength in GDX can be attributed to the rally in gold prices ($1,650/oz → $1,850/oz) but also sentiment being the worst in years as of Q3, with many names trading at their cheapest valuations since 2015.

This gave the sector the fuel to significantly outperform gold if we saw any positive change in sentiment, and this is exactly what we’ve seen with the gold price back above key support at $1,800/oz.

While this rebound in the GDX is certainly positive from a momentum standpoint, it has made things a little more difficult from a stock-picking standpoint.

This is because many miners have already made 40-50% moves off their lows, and it can be dangerous to chase the lower-quality miners or sector laggards with them hovering well above key support levels.

In this update, we’ll look at two of the better buy-the-dip candidates sector-wide and highlight why these two names have the potential to outperform in 2023, making them attractive names to keep near the top of one’s watchlist if we see further weakness.

I-80 Gold (IAUX)

I-80 Gold (IAUX) is a $730MM company in the gold sector with multiple projects in the state of Nevada, including its Ruby Hill, Granite Creek, and McCoy-Cove projects. The company also has a processing facility with over $1.0BB in sunk costs in northern Nevada.

The company plans to employ a Hub & Spoke model and feed material from its three mines to its central “hub” or processing facility at Lone Tree. Continue reading "Gold Miners Index Starting The Year Strong" →

MCD vs QSR: Which Is Healthier For Your Portfolio?

Posted on by Taylor Dart

While the S&P-500 (SPY) and Nasdaq Composite (COMP) are on track for a significant losses this year, the Restaurant Sector has put together a solid performance, on track for just a 9% loss or an 1100 basis point outperformance vs. SPY.

This is despite starting off the year with a much worse performance, with the index briefly down 25% as of May, despite it trailing the S&P-500 and Nasdaq at the time.

The strong recovery in the sector can be attributed to the fact that inflation looks to have peaked, which is a huge benefit to restaurant margins.

Plus, valuations were already at their most attractive levels since March 2020 as of early 2022, with the index starting its bear market six months before the S&P 500 in July 2021.

Finally, while not all restaurant names are considered defensive, quite a few are lower-beta, pay attractive yields, and some benefit from a recessionary environment as they become trade-down beneficiaries.

In this update, we’ll look at two of the largest names in the sector and which looks like the better buy after this violent market-wide correction.

McDonald’s (MCD) and Burger King (QSR) have gone head to head for years from a competition standpoint regarding burger wars.

While McDonald’s has more than twice the number of restaurants globally and started out a decade earlier with Burger King being the copycat, there’s no clear consensus on the better restaurant operator among the two.

From strictly a same-store sales or wallet share standpoint in the United States, McDonald’s has been the undisputed leader, and Burger King has lagged over the past couple of years.

However, with similar prices, similar menus, and Burger King’s appearing to have more iconic fries while McDonald’s wins on burgers, it’s difficult to crown a leader.

That said, there are significant differences when it comes to investing in the brands, especially given that Burger King is just one piece of Restaurant Brands International’s portfolio, which also consists of Popeyes’s Louisiana Chicken, Tim Hortons, and the newly added Firehouse Subs.

In this article, we won’t try to answer the near-impossible question of which is the better burger chain, but we’ll highlight which stock looks healthier for one’s portfolio. Continue reading "MCD vs QSR: Which Is Healthier For Your Portfolio?" →

Gold Miners On The Sale Rack

Posted on by Taylor Dart

It’s been a rough year for the major market averages, with the major indexes down roughly 20% in their worst year since 2008.

This poor performance is not surprising after a decade-long bull market that pushed valuations to historic extremes combined with an ultra-hawkish Federal Reserve that has aggressively hiked rates into a recessionary environment.

At the same time that higher rates have dented earnings and resulted in layoffs due to increased interest expense, the outlook for forward earnings is less clear, with consumer spending pulling back and reduced sales leverage for most corporations.

However, one sector stands out and has been trending higher over the past two months: the gold mining sector. In fact, the Gold Miners Index (GDX) has clawed back from a 30% year-to-date loss to just a 13% year-to-date loss, and many gold miners are trading in positive territory year-to-date.

Given that they’ve suffered through a much larger bear market than the Nasdaq (COMPQ) with a ~55% decline, these names are not only undervalued, but they’re long-term oversold, and the sector could have meaningful upside as we head into a strong seasonal period for the GDX.

In this update, we’ll look at two of the more undervalued names in the sector:

Osisko Gold Royalties (OR)

Osisko Gold Royalties (OR) is a $2.23 billion company in the precious metals royalty/streaming space.

This means that It finances developers, producers, and explorers in the commodity sector with a gold/silver focus, providing them capital upfront to build or expand their assets.

In exchange, Osisko Gold Royalties receives either a royalty or stream on the asset over its mine life, with the latter giving it a right to buy a percentage of metal produced at a fixed cost that is well below spot prices.

The result is that royalty/streaming companies have their tentacles in several projects, have their revenue streams spread across several countries, and are inflation-resistant. Hence, they are superior businesses from a margin and risk standpoint vs. most gold producers.

So, what’s so special about Osisko? Continue reading "Gold Miners On The Sale Rack" →

2 Stocks to Play the Rebound in the Restaurant Sector

Posted on by Taylor Dart

It’s been a solid quarter thus far for the AdvisorShares Restaurant ETF (EATZ) and the restaurant index as a whole, with the ETF and the index up 9% and 17%, respectively, thus far in Q4, a significant outperformance vs. the S&P-500 (SPY).

This outperformance can be attributed to the fact that many restaurant stocks were priced very attractively heading into Q4 after a violent 18-month bear market and because gas prices have been trending lower and inflation looks to have peaked, which both benefit restaurant brands.

The reason? Restaurant food traffic is sensitive to gas prices which impact discretionary budgets, and food costs and labor costs have been rising for two years, pinching the margins of many restaurant brands.

Unfortunately, while some names like Restaurant Brands Intl (QSR) are sitting at 52-week highs, others have remained under pressure, and Jack In The Box (JACK) and Dine Brands (DIN) are two examples of names that haven’t participated much in the recent rally. Given that both are well-run and trading at attractive valuations, I believe both make solid buy-the-dip candidates.

Jack In The Box (JACK)

Jack In The Box is a small-cap stock in the restaurant sector, with two brands, including Jack In The Box and Del Taco, after completing the $585MM acquisition earlier this year.

Unfortunately, the stock has lost over $300MM in market cap since the deal closed in March, with this attributed to weaker restaurant-level margins at both brands of 16.2% and 15.9%, respectively (Jack In The Box/Del Taco). At Jack In The Box, this represented a 390 basis point decline year-over-year, impacted by higher food, labor, electricity, and paper costs.

In the company’s most recent quarter (fiscal Q4), it reported revenue of $402.8MM, up 45% year-over-year, but this was largely due to the new contribution from Del Taco that made the results look much better.

Meanwhile, on a same-store sales basis, same-store sales were up just 4% at Jack In The Box and 5.2% at Del Taco in fiscal Q4, suggesting meaningful traffic declines when factoring in double-digit pricing.

This is not the end of the world, and the rest of the industry is also seeing traffic declines, but it is a little disappointing, given that the quick-service and fast-casual brands have been outperforming casual dining.

Hence, I expected a little stronger results from Jack In The Box. Continue reading "2 Stocks to Play the Rebound in the Restaurant Sector" →

2 Gold Miners With Large Safety Margins

Posted on by Taylor Dart

It’s been a rollercoaster ride of a year for the Gold Miners Index (GDX), with the ETF starting the year up more than 15% and massively outperforming the major market averages, only to suffer a 48% decline over the next five months.

Since then, the GDX has returned to outperforming, and some of the best names, like i-80 Gold (IAUX), are now up more than 50% from their lows.

This extreme volatility is why it can be difficult to trade the Gold Miners Index successfully. The reason is that one must be ultra-patient when establishing new positions to avoid large drawdowns during the down cycle, but being too complacent at the lows can be costly as the index can turn on a dime when it does bottom.

Fortunately, while several of the best names are already off to the races and out of low-risk buy zones, a couple of stocks are still in the proverbial stable and trading at attractive valuations. In this update, we’ll look at two names that offer large safety margins.

Sandstorm Gold (SAND)

Sandstorm Gold (SAND) is a $ 1.6 billion precious metals royalty/streaming company.

It finances developers and producers in the gold and silver space, giving them capital upfront to build or expand their assets. In exchange, Sandstorm receives either a royalty on the asset over its mine life or a stream on the asset, meaning that Sandstorm has a right to buy a percentage of metal produced at a fixed cost well below the current spot price of gold/silver.

Since royalty/streaming companies typically have royalties/streams on over 20 assets, they are much more diversified than producers with 5-10 mines.

They also have much higher margins, given that they do not have to pay for labor, chemicals, fuel, explosives, and transportation but simply sit back and collect their metal deliveries from these assets.

Finally, the major benefit to owning royalty/streaming companies is that they are not required to spend annually on sustaining capital to maintain an operation, including mine development, drilling, and tailings expansions. In fact, any added resources are very beneficial, given that the royalty/stream is bought and paid for already. Hence, this is a proverbial cherry on top.

Unfortunately, while Sandstorm benefits from this superior model that carries very low risk, the company has had a tough year in 2022. This is because it went out and completed two major acquisitions ($1.1BB value), a smart move, and these deals transformed its portfolio from an average royalty/streamer to one with a phenomenal portfolio. Continue reading "2 Gold Miners With Large Safety Margins" →