Disclosure: The following represents my opinions only. I am not receiving any compensation for writing this article, nor does Hydra Capital have any business relationship with companies mentioned in this post. I am long every stock in this post. (Image credit to Karan Mandre on Unsplash)
Sometimes you really have to wonder if the universe has a sense of humour. 2021 was the Year of the Metal Rat in the Chinese zodiac and, as the story goes, the rat came to be the first sign in the zodiac by winning a race set up by the emperor amongst all of the animals. The rat — being opportunistic, resourceful, imaginative, and quick-witted — hitched a ride on the back of the ox across a river and then jumped off the back of the ox to cross the finish line first. If you didn’t have your wits about you in 2020, it was easy to get whipsawed, but opportunities were plentiful if you were quick.
The fact that the ox — dependable, unyielding, methodical, and conservative — follows the rat, seems appropriate given my feelings about 2021. If a person managed to have some rat-like characteristics in 2020, there was surely money to be made, and I’m feeling that 2021 could be rewarding simply by being ox-like and staying the course. For me, that course consists of a healthy dose of energy and materials, aka “rocks, trees, and dirt”. Energy and materials companies have both been out of favour for a long time, more or less in survival mode, but are now getting visibility on generating significant free cash flow as commodity prices across the board recover. This is the natural order of things when it comes to commodities. The boom years make you forget all about the busts. I’ve made my case for things like oil, gas, copper, and nickel in the recent past and see no reason to change my views, other than the fact that I might add uranium to that list. Nothing goes straight up, but I feel good about the underlying combination of macro trends and historic underinvestment in energy and materials, pretty much across the board. Being an ox next year will mean being conservative and committed to the hunt for value, with a healthy dose of determination when it comes to trying to ride a resource bull market without getting shaken out. With the large US investment houses only recently calling for a commodity bull cycle, the money has only started trickling in as most funds (and banks) have decimated their resource expertise over the last few years. I haven’t heard about any new mining or energy investment funds opening up yet and, if I’m right, the coming years will see plenty of those funds during the scramble for materials as the effects of the Great Restart ripple through the market. As Frank in our office likes to say, “I’m trying to stay focused on the destination, and not worry too much the journey”. That’s a very hard thing to do, but if any conjured animal spirit can do it, it’s the Metal Ox.