Teck Resources is being targeted by readers of a popular newsletter. We may be able to catch these guys in a short squeeze.
I’m going to protect the name of the popular newsletter because it’s one thing to target another newsletter’s short position. It’s another matter entirely to make it personal against the guy who runs the newsletter. The latter is sort of nasty and is not very Christian in my opinion so I’m not going to do it.
The guy who runs the newsletter is promising readers a 100% return, over the next 3 months, on taking a short position in the stock through put options. He advocates buying the April 18 $30 strike puts on the stock at $2.40 or better.
I think we can target his trade successfully and here’s why.
Teck Resources Ltd is engaged in the business of exploring for, acquiring, developing and producing natural resources. The company’s activities are organized into business units that are focused on steelmaking coal, copper, zinc and energy.
If the U.S. dollar strengthens, commodities will likely go down and that’s the real risk of us going long Teck Resources. Fundamentally, this company is a powerhouse.
Teck Resources released its quarterly earnings on February 14, 2018. The company reported EPS of $0.95 which missed the $1.01 estimate. Revenue also missed coming in at $3.21 billion versus the $3.28 billion estimate. Teck Resources’ quarterly revenue was down 9.8% year-over-year.
Revenue has grown by 58.61% in the past year. This is very strong growth! Measured over the past 5 years, revenue has been decreasing by -1.81% on average per year. Still, that’s not bad enough to short IMO.
The company makes billions of dollars each year. Yes they have stumbled a little on revenue but consider their incredible strong valuation metrics.
With a P/E ratio of 8.87, TECK is fairly cheap. When compared to the industry (Integrated Mining) average which is 28.29, TECK’s P/E ratio is cheaper than 85% of the companies in the same industry. The Forward P/E ratio of 8.12 also indicates a cheap valuation. When comparing the price to book ratio of TECK at 1.08, to the average industry price to book ratio of 2.22, TECK is again cheap. When comparing the Enterprise Value to EBITDA ratio of TECK at 4.51, to the average industry ratio of 11.85, once again, TECK is pretty darn cheap. In fact, TECK’s EBITDA is cheaper than 88% of the companies listed in the same industry.
What short sellers in Teck Resources are probably doing is playing off of the series of analyst downgrades over the last month. On February 20, 2018, Macquarie downgraded the stock from an outperform rating to neutral. Bank of America downgraded the stock to a hold rating. Clarkson Capital downgraded it from a buy rating to a neutral rating. Still, even with these downgrades, there is 1 sell rating, 4 hold ratings, 10 buy ratings, and 1 strong buy rating on the stock.
The strongest financial metrics of Teck Resources is not in valuation but profitability. TECK’s return on assets of 6.59% is among the best of the industry. TECK does better than the industry average return on assets of 3.04%. TECK has a return on equity of 12.23%. This is better than the industry average of 9.89%. TECK has a profit margin of 19.75%. This is among the best returns in the industry. The industry average is 6.24%. TECK outperforms 94% of its industry peers. Finally, the company has a Piotroski-F score of 8 which is a very strong score and indicates great health and profitability.
I’ve been stalking Teck Resources for awhile now because of the exploding price of zinc. Teck Resources is a world leader in the production of copper, metallurgical coal and zinc.
The price of copper has been rising too.
Since President Trump was elected, most base metals have been in an uptrend.
Teck Resources Stock
Notice the positive divergence between large players volume and price. As a general rule, you never go short a stock with rising large players volume because it suggests traders with deep pockets are accumulating the stock on pullbacks. The positive Twiggs Money Flow also suggests the stock is being accumulated although it has come down.
Here is what the newsletter that is recommending buying TECK puts is going for:
This is a very risky trade when you’re betting against a newsletter that brags it has thousands of readers and has been featured in the Wall Street Journal, USA Today, the New York Times, the Washington Post, and that the author has been interviewed on Bloomberg, CNBC and Fox Business News.
I think Teck Resources is a buy on a short squeeze play. I think short sellers started swinging their fists a little wild on this one. I think we can be smart and wait for the opportune counter uppercut to lay them out flat in this stock.