Adam Giddens used to mainly rely on screening services and social-media buzz when looking for stocks to buy. Lately, though, he’s turned his attention to a different kind of influencer: Donald Trump.
As the president’s administration breaks with precedent to take more and more ownership stakes in public companies on behalf of the US, traders like Giddens are trying to think like Trump to find the next targets. After all, the stocks tend to see massive gains following word that the US was taking a stake.
Lately, Giddens has set his sights on Military Metals Corp., which is exploring new sources of antimony, a material used in military equipment like explosives, nuclear weapons production and infrared sensors. China is currently the largest producer of antimony, while Russia is another large supplier.
“That combination of strategic importance and supply chain vulnerability caught my attention, so I started looking for public companies with exposure to antimony,” said Giddens, who’s also been poring over government documents in search of potential buys. “Given the size and location of their resource base, I think they’re a strong candidate for the next wave of strategic investment in this space.”
The speculation among traders comes as the administration buys into companies to achieve what it says are key strategic goals, such as securing semiconductor supply chains and making sure China can’t cut off supplies of critical minerals. There’s even an exchange-traded fund in the works: Roundhill Financial Inc. has filed with regulators to launch an ETF that would buy into industries reflecting the US government’s investment strategy.
The investments are drawing criticism because they mark a dramatic shift from the policies of prior presidents, especially Republicans who long championed free markets and keeping the government out of the capital tables of corporations. Yet those are issues for politicians, economists and academics to sort out. For both professional fund managers and individual traders like Giddens alike, there’s a much more pressing question: What’s next?
Giddens’ portfolio has already been boosted by holding shares of one of the companies targeted by the White House. The 31-year-old Vancouver resident, who works in capital markets and trades stocks in his free time, said he bought shares of MP Materials Corp. before the Pentagon took a 15% stake in the company in July, kicking off what’s become a 95% rally in the shares of the producer of rare-earth materials crucial for electric vehicles, robotics and a wide array of electronics.
Trump’s focus on industrial policy and his beliefs in government intervention and guiding the market are changing the way investors should evaluate companies, according to Aniket Shah, the global head of sustainability and transition strategy at Jefferies Financial Group Inc. who tracks the economic implications of Trump’s policies.
“Part of this analysis of businesses going forward has to be this political relationship with the state,” he said.
After MP Materials, the government leveraged support commitments made to Intel Corp. as part of the CHIPS Act passed during President Joe Biden’s administration to take a nearly 10% stake in the company in August with the goal of helping the beleaguered chipmaker turn its operations around.
A deal to take a 5% stake in Lithium Americas Corp. followed in September, then a 10% stake in critical metals explorer Trilogy Metals Inc. last month. Commerce Secretary Howard Lutnick has suggested that stakes in defense contractors are on the table, too.
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Not surprisingly, the hot technology that’s powered this year’s gains in the stock market — artificial intelligence — is being put to work in the hunt for targets.
Cole Hansen, a Boston-based amateur trader who works full-time in shipping and delivery service support, has asked popular chatbots like OpenAI’s ChatGPT why Trump had picked certain industries, what they had in common and what could be targeted next. When the bots suggested energy, computers and robotics, Hansen started looking at battery companies. Later, his chats with the bots helped him land on graphite producers.
“Most of the AI models gave the same answers,” Hansen said. “Once I asked specifically for commonalities among the already invested companies is when it started mentioning specific industries it viewed as dominated by China and started citing graphite as one of the biggest ones.”
Hansen eventually came across Novonix Ltd., a company that received a loan of up to $755 million from the Department of Energy in December to build the first large-scale synthetic graphite production site for batteries in the US. He thought the stock was “positioned perfectly” to capitalize on the trend of the government taking stakes. However, since he first bought the stock in mid October, the company’s Australia-listed shares have sunk around 40%.
At Old West Investment Management, partner and portfolio manager Brian Laks said he expects that seabed mining firms like TMC The Metals Company Inc. and Odyssey Marine Exploration Inc. may become targets for government stakes. The Trump administration issued an executive order in April related to seabed mining, and the topic has been discussed in congressional hearings.
Old West had invested in MP Materials, Lithium Americas and Trilogy Metals before the US government took stakes, expecting there would be a premium put on supplies of critical minerals outside of China, Laks said.
For some traders, like Matthew Tuttle of Tuttle Capital Management, there have been opportunities to cash in on the administration’s deals even after they are announced. He wrote put options on Intel’s stock in October, betting that the shares would rise as investors followed the US by piling in. He exited the position on Nov. 5 for a profit.
‘Hey, I Was Right’
While Tuttle isn’t trying to guess which specific company will be next in line, he said the trend adds to his conviction about sectors where he has already invested. That includes critical minerals and drones, which he expects to benefit from government support going forward.
The government is “unlikely to buy into any industry or area that I have not already considered, but the fact that they’re doing it means, hey, I was right,” Tuttle said. “Somebody else is doing this too and someone with a whole lot deeper pockets and way broader reach.”
While the US stakes are creating at least short-term rallies in the stocks involved, where all of this is headed in the long run is anyone’s guess.
‘Step Toward Socialism’
The administration’s stock-picking has been met with some backlash even in Trump’s own party, with Republican Senator Rand Paul criticizing the White House’s move to take equity in Intel as “a step toward socialism.”
Analysts also have questioned Lutnick’s idea of taking stakes in defense contractors, with Jefferies warning that it could pose “the ultimate conflict of interest.”
Then there are the longer-term risks to shareholders. The state’s favored companies could become less efficient if they’re sheltered from market competition, said Matt Gertken, chief geopolitical strategist at BCA Research. Or, as has happened in China, the government could create such ruthless competition that companies are unable to turn a profit.
And of course, this kind of speculation comes with plenty of risk if investors pick companies that don’t end up attracting government investments. Shares of Critical Metals Corp. leapt as much as 109% in one trading session after a report that the administration had discussed the possibility of a stake, then sharply pared gains the same day after an official said a deal wasn’t currently on the table. Shares of Energy Fuels Inc. and Ramaco Resources Inc. rallied last month, when B. Riley Securities raised its price targets on the two and said other government intervention in the rare earths sector was highly likely. But those advances have evaporated.
In the near future, though, there’s no sign that the government is abandoning its strategy, so the hunt goes on.
“For now, there’s an impetus to make sure that some of these companies are protected and that some of these supply chains are resilient,” BCA’s Gertken said. “At some future date, that could shift back because of inefficiencies, because of deficits, because of inflation. But for now, it’s important for investors to know which way the wind is blowing.”
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