SUNDAY ROAST: The stocks that lit a fire under our experts this week

Barry FitzGerald

There’s talk of war. And as is the way of market-watching types, talk of war means gold is back on the radar. The old “safe haven”.

Not too long ago, the easy option might be to pile into Newcrest (ASX:NCM). And there’s been some movement there the past week, but Garimpeiro prefers to look at the other side of that takeover deal and see what projects global giant Newmont was offloading to make room in the garage for NCM.

One of the more promising to go was Newmont’s 75% stake in the Christmas Creek gold project, 140km southwest of Halls Creek in the Kimberley region of WA.

Having spent $5.7m on the project, it was handed back to privateer Archer X. One of the three men controlling Archer X is an old mate of Trek (ASX:TKM) non-executive director Neil Biddle, of early Pilbara Minerals fame.

The result is Christmas Creek will soon be 100% owned by Trek, which has $7m cash to get it into gear.

Garimpeiro notes exploration drilling by Newmont at three Christmas Creek prospects as wide-spaced as could be – “something major mining companies tend to do when they are looking for the next big one”.

And nice hits were recorded, including 7m at 4.9 grams of gold a tonne and 2m at 9.65g/t.

Trek is a genuine small cap right now, trading at just under 3c with a market cap of $14.5m.

There are some big gaps to fill, but when drilling begins after the wet season in March, Fitz reckons there’s potential here for genuinely “game-changing stuff”.

Oh, did we mention Trek still has a lithium project in its back pocket?

Goldman Sachs

It’s a bad time to be in obesity stocks. In case you missed it, Danish biotech Novo Nordisk has cured us all of being fat with its weight-loss wonder drug, Ozempic.

If you believe that then hey, I have a hoverboard to sell you.

And anyway, what about all that hard work we’ve just put into convincing ourselves that it’s perfectly fine – nay, normal even – to eat more in a day than entire families in many parts of the world have to stretch for a week?

Body positivity, right?

Sigh. Regardless, investors the world over are falling over themselves to dump any stock even barely exposed to the “weight loss” thematic – and that includes some ASX darlings.

Goldman Sachs isn’t buying into it though. It’s felt a need to put a big DON’T PANIC sign out the front door of three favourites – CSL, ResMed and Fisher & Paykel.

Resmed (ASX:RMD) $22.58, MC $11.7bn: This was the big one, falling from $34 in August to as low as $21.45 recently. Why? Because it makes CPAP machines. And not sleeping properly causes obesity issues. Join the dots, right?

GS however, isn’t buying the hype and maintains its Buy rating on RMD. The company got a huge boost in 2021 when major competitor Philips recalled more than 5 million CPAPs because foam inside the units meant to reduce noise was breaking off and blowing into users’ mouths. Not ideal.

As of June 2023, the problem has not been resolved and the US FDA still maintains its safety warnings. Goldman believes this problem has afforded RMD “a generational opportunity” to capture market share.

“We see a favourable risk-reward skew post the recent de-rate, noting the shares are trading meaningfully below historical averages on both a P/E and EV/EBITDA basis,” noted GS.

CSL (ASX:CSL) $235.47, MC $113.75bn: This one’s hurting the mums and dads. But the rot set in back in June following a market update where CSL noted “FX headwinds” ahead, a situation which certainly hasn’t improved.

But the fall accelerated as Novo’s star rose through August, and recently news that Ozempic looks like it can also delay the progression of kidney disease in diabetes patients (wonder drug!) has held CSL’s head under water for a second and third dunking.

CSL, you see, spent some $20-odd billion to snap up its Swiss subsidiary, Vifor, which, as it turns out, sells drugs to the kidney disease/dialysis market.

Goldman’s view? Meh. For starters, kidney disease contributes around 7-8% of CSL Group FY24 revenue forecast (which includes Vifor’s). So it’s a bit out of whack with a 14% fall in the CSL price since September. And Ozempic’s benefit is still not at all clear (and won’t be until data in 1H24).

And besides, Goldman says any positive outcome trial from Novo broadens the potential utility of the GLP-1/GIP receptor drugs like Ozempic, which strengthens the argument that US payor coverage/reimbursement should be expanded.

When this payor access improves, it would impact those companies with exposure to weight, diabetes, and cardiovascular diseases.

Peter Strachan

‘Strachanie’, as we call him, (although we haven’t actually asked his permission) isn’t buying into the Oil is Dead debate, because he lets data do the talking.

“Despite rapid development of multiple alternative energy sources and storage technologies, demand for fossilised sunshine is expected to expand from current levels, driven by population growth and increasing affluence,” he says, before dropping this chart bomb:

Every way you look at it, O&G demand will increase, and supply deficits will widen. That only means one thing – higher prices.

But where to find value? The companies that are most likely to survive, Strachan(ie) says, are those “that can self-fund from operating cash flow or by farming out and partial sale of development assets”.

Companies like these:

ADX Energy (ASX:ADX) 11c, MC $39m: Primed to lift oil production from about 330 BOEPD, to over 1,500 BOEPD from two oilfield development wells on its 50% held 5.2 million barrel, Anshof oilfield in Austria’s Molasse Basin. Funding for field development provided by industry partners.

Success would green light a 4,000 BOPD production and transport facility.

ADX is eyeing several oil and gas prospects near Anshof, where any decent hits should attract further joint venture funding support.

Strachan says the “big upside” comes in December with drilling of the “relatively shallow Welchau exploration well, targeting a massive prospective gas and condensate target of 807 Bcfe”.

“Investors will not have to wait long to see drill bits turning and ADX’s leverage to success will have many eyes watching,” he says.

3D Oil (ASX:TDO) 5.8c, MC $15.4m: Petroleum exploration company with interests in the Otway and Gippsland Basins, as well as the Bedout-Sub Basin, along trend from Carnarvon Energy’s Dorado oil and gas discoveries. Its permits, Strachan notes, “include large gas targets close to infrastructure in the high value Eastern Australian gas market”.

If you need some big name reassurance, TDO has a joint venture with mammoth energy company ConocoPhillips chipping in ~$100 million towards two wells, where TDO retains a 20% interest.

With gas prices ranging from A$6 to A$12/GJ in this market, Strachan says TDO “shows significant leverage to success from an initial two funded wells.”

Carnarvon Energy (ASX:CVN) 15c, MC $274m: In JV with Santos, CVN’s aiming for development of the 389 mmboe Dorado and Pavo oilfields in 2024 with first oil at 100,000 BOPD possible in 2027.

CVN holds net Contingent Resources of 43 mmboe at the 10% held Dorado and 20% held Pavo oilfields as well as extensive gas and oil exploration targets with net Prospective Resources totalling 513 mmboe.

“By any measure of value for undeveloped Contingent petroleum Resources, Carnarvon holds great appeal,” Strachan says.

And that’s as ringing as endorsements come.

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