Asset manager Chen Lin’s picks for the third quarter are in, and they include an energy company, a silver miner, two silver ETFs, and several biotechs.
He’s also taking a victory lap on a pick from Q2 that is performing well.
Chen said he has been eyeing the energy sector since Colombia on June 19 elected a new president, left-wing Gustavo Petro, who wants to halt new oil and gas exploration and end open pit mining.
Petro is the first leftist leader of Colombia, which is now one of nine Central and South American countries with leaders leaning ideologically in that direction.
But the situation is a great opportunity for investors, Chen said.
Canacol Energy Ltd.
Calgary-based Canacol Energy Ltd. (CNE:TSX; CNNEF:OTCQX) is a major player in natural gas production and exploration in Colombia. Its stock dropped 9.3 percent the Monday after the runoff election, the company’s biggest intraday fall since May 2020.
But analysts remain bullish on the company, including Chen and Eight Capital’s Phil Skolnick, who say the company’s long-term prospects have not been harmed.
“We continue to believe it is difficult for radical changes to be made due to the balance of powers in Colombia,” Skolnick wrote in a June 20 research report, as reported by Bloomberg.
Petro still faces a divided Congress and faces term limits, he noted.
“The winner is essentially a lame duck, in our view,” Skolnick wrote. The company also has a new pipeline to Medellin coming online that will essentially double its production, Chen said.
“So right now, it’s at a historical low due to the Colombia election,” Chen said. “It looks like a very good opportunity.”
Canacol also recently announced a CA$0.05-per-share dividend to shareholders, payable on July 15.
It said it’s the largest independent onshore conventional natural gas exploration and production company in Colombia, and that it supplies about 20% of the country’s natural gas.
Canacol has a market cap of CA$449.36 million and 170.86 million shares outstanding. It trades in a 52-week range of CA$4.09 and CA$2.43.
Altaley Mining Corp.; Silver ETFs
The green energy revolution has a silver highlight, Chen said, as the growing demand for solar panels is driving the demand for the precious metal. Silver use in solar applications increased 13% to 113.7 Moz in 2021, according to the Silver Institute.
Chen recently gave a presentation at the Metals Investor Forum in Toronto in June, in which he said he extolled the virtues of buying into the sector.
“We have a historical opportunity for silver,” he said. “Demand for solar panels is set to exponentially rise.”
One of his favorites, he said, is Altaley Mining Corp (ATLY.V), a Vancouver-based miner with two 100%-owned gold, silver, and base metal mining projects in Mexico. Its Tahuehueto mill is set to ramp up to full production by the end of the year, and its Campo Morado project is producing an average of 2,200 tonnes per day and is estimated to be Mexico’s sixth-largest zinc producer, the company said.
Chen said the stock has been in decline, from CA$0.35 in April to CA$0.18 on Tuesday, with the anticipation of a block trade. The company said that a director, Roberto Guzman Garcia, is selling up to 50 million of his 68.2 million shares as part of a restructuring of his Mexican real estate business. The sales are being made in a series of private transactions.
After the block trade in “a couple of weeks,” pressure will ease, Chen said. “It is a very good buying opportunity for this stock.”
Altaley has a market cap of CA$48.63 million with 277.89 million shares outstanding. It trades in a 52-week range of CA$0.80 to CA$0.18.
Chen also suggested two silver exchange-traded funds (ETFs): the ETFMG Prime Junior Silver Miners ETF (SILJ), and the Silver Miners ETF (SIL).
Finally, Chen picked three companies from the biotech sector, including one encore performance from the second quarter.
Tricida, Inc. (TCDA:NASDAQ) is a pharmaceutical company developing Veverimer, which is designed to treat metabolic acidosis in patients with chronic kidney disease. The U.S. Food and Drug Administration (FDA) did not approve the drug in 2020, but the company plans to resubmit its New Drug Application (NDA) in 2023.
A hedge fund, Venrock Healthcare Capital Partners, owns more than a 10% stake in the company and has acquired shares worth more than CA$13 million this month.
“The company looks like it’s about to break out from the chart,” Chen said of Tricida.
Tricida’s market cap is $542.06 million with 55.42 million shares outstanding. It trades in a 52-week range of $12.45 and $3.55.
Chen said he sees a lot of potential in Amyris Inc. (AMRS:NASDAQ), a synthetic biotech company that “programs” cells to create sustainable ingredients.
The company just last week announced that it had successfully began production at its new precision sugar fermentation plant in Barra Bonita, Brazil. The plant consists of five precision fermentation “mini-factories” that can produce 13 of Amyris’ molecules, which are used in everything from health and beauty products to flavors and fragrances.
From the first quarter of 2021 to the first quarter of 2022, the company said it saw 75% core revenue growth and grew consumer revenue 121% to a record $35 million.
“They will make a very strong start in 2023,” Chen said. “I would recommend using any weaknesses in the next a few months to accumulate shares. If they can deliver $2 billion in revenue by 2025, the stock will have at least (a) 10x upside, could be a lot more.”
Amyris has a market cap of $593.07 million and 319.71 million shares outstanding. It trades in a 52-week range of $17.19 and $1.47.
Axsome Therapeutics Inc.
The asset manager also doubled down on his top pick from the second quarter, Axsome Therapeutics Inc. (AXSM:NASDAQ), a biopharmaceutical company that focuses on therapies for central nervous system conditions.
The company has been waiting on decisions from the FDA on drug candidates for major depressive disorder and migraine.
Its stock went up more than 50% to $37.03 on Monday on news that it had received proposed labeling for its NDA for its major depressive disorder treatment, bringing it one step closer to approval.
Axsome has a market cap of $1.44 billion and 38.91 million shares outstanding. It trades in a 52-week range of $74.10 and $19.38.
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