Cabot Explorer Issue: March 27, 2025

Portfolio Changes:
None

“Gold is money. Everything else is credit.”

I’m now in Japan and there’s a palpable sense of confidence here as Japanese firms have steadily become more shareholder friendly.

Japanese companies that are members of the broad TOPIX index have significantly ramped up shareholder returns, announcing share buybacks totaling about $125 billion in 2024, a substantial jump from the previous year.

Total shareholder payouts (dividends + buybacks) for TOPIX companies are projected to hit a record high in 2025, representing a 44% increase from the previous year.

All this could boost Japan’s structural return on equity (ROE), currently averaging around 9%, closer to global norms of around 13% to 15%.

The markets continue to lack direction and are buffeted by uncertainty regarding tariffs, taxes and spending, debt and conflict, but yesterday came to life as concerns over some of these risks were mollified. Nevertheless, broadening and diversifying your portfolio makes sense to maintain an objective of growth while also being mindful of protecting your wealth.

This brings us to gold.

One can argue about the validity of the above quote by J.P. Morgan, but it seems that, given today’s current investment climate, a 10% to 15% allocation of total liquid assets seems to be about right for many.

One reason beyond the fundamentals and momentum backing gold is the steady increase in Chinese buying, both privately and by the Bank of China.

While in Kyoto over the weekend, I visited the famed Kinkakuji temple, also known as the “Golden Pavilion”.

I learned and saw with my own eyes that this is a favorite destination of Chinese tourists and understand it is a must stop for Chinese officials. Data shows that China has been steadily exiting U.S. Treasuries while increasing its gold reserves. Which brings me to today’s recommendation.

New Recommendation

VanEck Junior Gold Miners ETF (GDXJ)

If you already have some physical gold and some leading gold stocks such as our premier Agnico Eagle Mines (AEM), you may be wondering what else you should consider doing.

Gold prices normally move first through physical gold prices, then to leading gold miners, before finally getting to the smaller junior mining and exploration stocks.

So now I recommend a basket or ETF approach using the VanEck Junior Gold Miners ETF (GDXJ) to capture this potential growth which is already underway.

A key factor behind gold’s latest rally was a surge in the holdings of gold bullion backed ETFs but many don’t realize the potential of junior mining stock ETFs.

This VanEck ETF has 84 positions with the top 10 accounting for 44% of total assets. Half of the stocks in this are Canadian, 21% are from Australia, and 7% are from South Africa.

These companies are largely small and early-stage miners. Junior gold miners have historically provided leveraged exposure to gold prices as investors, individuals and institutions turn to juniors to catch up with the performance of early gold investors.

Where gold prices go from here is unknown but inflation, a weaker dollar, trade conflict, political uncertainty, and buying trends of central banks make a small allocation to a basket of junior mining stocks a move combining speculation and safety.

One final note on the matter is that gold and gold stocks are not very correlated with other assets classes so when stocks move one way, gold and gold stocks often more in another direction and therefore act as a “shock absorber” for your portfolio.

Below is a chart highlighting this trend, courtesy of FactSet.

BUY A HALF

Explorer Weekly Stock Commentary

Below is a brief update on each Explorer stock. Any changes in ratings will be highlighted. This section is all you need to read each week.

Explorer Disrupter Recommendations – need to watch more closely and have a 20% trailing stop-loss in place.

Agnico Eagle Mines (AEM) shares have performed well over the past year and year-to-date as they have gained 94% and 29%, respectively. Agnico offers us a global footprint with mines in Canada, Australia, Finland, and Mexico, with exploration and development activities in Canada, Australia, Europe, Latin America, and the U.S. Buy a Half

Banco Santander (SAN) shares were steady this week after rising 10% last week. Santander’s profits increased 14% last year and it now has more banking customers than JPMorgan Chase. On Tuesday, Santander’s market cap passed €100 billion, making it the first bank in the European Union to cross that threshold in the last decade. Buy a Half

BYD (BYDDY) shares pulled back 5% this week after soaring 14.6% last week. The automaker is planning to double overseas sales in 2025 to more than 800,000 vehicles and projects total vehicle sales for 2025 at 5.5 million. Last week it unveiled a lineup of electric vehicles it says can charge almost as fast as it takes to refuel a regular car for nearly 300 miles of driving range. Buy a Half

Centrus Energy (LEU) shares were off 7.9% this week and shares have not performed well over the last month. China’s DeepSeek AI model lowered expectations regarding the growth of modular nuclear facilities needed to power AI data centers. We will give the stock a little more time to reverse course but need to watch it closely. Buy a Half

Cloudflare (NET) shares were up this week following an upgrade and higher target price from a Bank of America analyst. The analyst cited Cloudflare’s ability to profit from both cybersecurity services and artificial intelligence services. Buy a Half

Dutch Bros (BROS) shares were up again this week, and the Oregon-based beverage chain has grown to 982 locations across 18 states, with revenue growing more than 30% year over year. It is an expensive stock, so I’m leaving it at Hold for the time being. Hold a Half

Luckin Coffee (LKNCY) shares gave back last week’s modest gains but are up 35% so far in 2025 as China stocks outperform. The company continues growth of stores in China and Singapore and is eyeing other overseas markets as well. Buy a Half

Sea Limited (SE) shares seemed to have hit pause over the last month after a stretch of sharp price appreciation.

Sea generated $238 million of net income in the fourth quarter of 2024, compared to a $112 million loss a year ago. The company’s balance sheet is also much improved with $10.4 billion in cash and equivalents on hand.

Gaming segment Garena has over 600 million users playing its games quarterly. Hold a Half

Subaru (FUJHY) shares were unchanged this week. Based in Tokyo, Subaru holds a 10% market share in Japan, making it the third-largest automaker in the country while in America, the Subaru brand has a devoted following. Subaru stock sells for only five times trailing earnings and about 70% of book value. Buy a Half

Explorer Dominator Blue-Chip Recommendations – More Buy and Hold

DBS Bank (DBSDY) shares were up marginally this week as it announced it is in a strong position to acquire a controlling stake in Panin Bank, Indonesia’s 12th largest lender. Headquartered in Singapore, it is the largest constituent of the Singapore Straits Times Index. Buy a Half

International Business Machines (IBM) shares are an excellent way to play a range of advanced tech from cloud computing to quantum computing and is building a powerful market position in artificial intelligence as well. IBM has now booked more than $5 billion worth of AI-related business. Buy a Half

Visa (V) shares are quietly up 9% so far in 2025 and represents a great core holding though it faces challenges on the regulatory front as competitors and antitrust advocates target its giant operating margin of 66%. Buy a Half

Watch List – Stocks we like but do not follow day-to-day

ConocoPhillips (COP), Franco-Nevada (FNV), MOOG (MOG-A)

Explorer ETF/Fund Positions

Aberdeen Asia-Pacific Income Fund (FAX) is a close ended fixed income mutual fund launched and managed by Aberdeen Standard Investments (Asia) Limited in Singapore. Buy a Half

Grayscale Bitcoin Trust (GBTC) offers investors a way to track very closely to the day-to-day or “spot” movement of bitcoin prices. For aggressive investors comfortable with volatility. Buy a Small Allocation

JPMorgan Equity Premium Income ETF (JEPI) offers double-digit yield coming from both option premiums and dividends using a value-focused strategy. Buy a Full

Morgan Stanley China A Share Fund (CAF) offers exposure to a basket of top Chinese-listed stocks. Buy a Half

Oberweis Micro-Cap Fund (OBMCX) fund stands out for several reasons. The fund’s sound investment process and strong management team earns it a rare Morningstar Medalist Rating of Gold. Over the past five years it has posted an impressive average annual return of 20.7%. Buy a Half

Sprott Platinum and Palladium ETF (SPPP) offers direct exposure to both platinum and palladium which are selling at a sizable discount to gold offering potential upside appreciation. Buy a Half

WisdomTree Emerging Markets High Dividend Fund (DEM) offers a high dividend yield and some of the highest quality emerging market stocks. Buy a Half

Model Portfolio

ETFs

Explorer Stocks Summary

Brief company summaries that will not change week to week.

Agnico Eagle Mines (AEM) follows a conservative strategy and with a history spanning more than 60 years, and now operates a sizable portfolio of 11 assets located in four countries. Management forecasted gold production of approximately 3.45 million ounces in 2024. The company estimates it has about 54 million gold ounces of proven and probable reserves. Furthermore, Agnico Eagle has paid a dividend for 41 consecutive years with a dividend compounded growth rate of 23% per year since 2005 and paid a dividend of $1.60 per share in 2024.

American Superconductor (AMSC) aims to modernize the electrical grid by helping it connect and distribute power. Its products allow and coordinate the power grid including transmission lines, substations and generators. For example, its mega-watt scale power control gear leads to safer and more resilient and efficient power grids. The company is already the leading supplier of high-performance superconductor cables and its top markets are strategically important growth markets such as: Maritime, Maglev technology, and AI data centers – a huge growth opportunity.

Banco Santander (SAN) was founded in Spain in 1857. The bank’s U.S. headquarters is in Boston, but its strength lies in Latin America and Europe where it has more than 8,000 branches with 171 million customers as well as 58 million digital accounts. About 55% of deposits and loans are in Europe with the balance in Latin America. In its most recent quarter, Santander’s revenue was up 8% while net profits increased 16%.

BYD (BYDDY), in both 2021 and 2022, more than tripled sales from the previous year. That’s hyper growth and including hybrids, BYD has already surged past Tesla in terms of sales. Most of BYD’s sales are still in China but it has a big international expansion underway, including in the U.S., Europe, and Asian markets. BYD is the world’s largest EV battery maker and with CATL and others, is working on sodium-ion batteries. Much less energy dense than lithium batteries, sodium batteries should be much cheaper. BYD will also launch a next-generation Blade battery in 2025, with longer range and faster charging. That, along with various other models, could help rev up BEV sales growth next year. BYD expects solid-state batteries for high-end models by 2027, but not fully reaching lower-end models until 2030-2032.

Centrus Energy (LEU), based in Bethesda, Maryland, supplies nuclear fuel and services for the nuclear power industry in the United States, Japan, and Europe. Centrus Energy is building an enrichment facility in Ohio and would be very likely to benefit especially if federal funding moves forward to support this and other nuclear projects. I believe Centrus stock will benefit from increasing demand for its services, and that downside risk is low while upside potential is significant.

Cloudflare (NET) is both an aggressive and dominator recommendation offering products and services in four cutting-edge fields, though cloud computing is its bread and butter. Its global reach is breathtaking as 20% of all web traffic runs through Cloudflare’s network and over 95% of internet users from 180 countries worldwide access the company’s services each day. And it reaches these users within 50 milliseconds. The firm’s client list includes more than 30% of Fortune 1000 companies and the ability to efficiently move and connect data – from where it is located to where it is needed (edge computing) – is a massive business opportunity in which Cloudflare already excels.

Watch List: ConocoPhillips (COP) is a global energy industry giant and one of the largest independent exploration and production (E&P) companies in the world, as measured by production levels and proved reserves. The company, founded in 1917 and based in Houston, has operations in 13 countries, although almost half the company’s production is derived from U.S. sources.

DBS Bank (DBSDY) is one of the largest banks in Southeast Asia with a presence in 19 markets. It is headquartered in Singapore, with its main listing on the Singapore Stock Exchange, and is the largest constituent of the Singapore Straits Times Index. The Government of Singapore established DBS in July 1968 and its largest and controlling shareholder is Temasek Holdings, which is one of two large sovereign wealth funds controlled by the Government of Singapore. DBS has assets of roughly $750 billion and a growing presence in the three key Asian areas of growth, which it defines as Greater China, Southeast Asia, and South Asia, meaning India. It is the largest and strongest bank in Southeast Asia and the leading consumer bank in both Hong Kong and Singapore.

Dutch Bros (BROS) is an operator and franchisor of drive-through coffee stores, with 982 stores as of the end of the fourth quarter, including 32 that it opened in the quarter. It’s expanding at a steady pace, expecting more than 150 new stores in 2025, and it envisions up to 4,000 stores over the next 10 to 15 years.

Watch List: Franco-Nevada (FNV) is a company with more than half of its revenue coming from gold, but it also offers exposure to platinum, silver, and oil and gas. Franco-Nevada’s focus on royalties and streaming reduces risk and enables it to sidestep the huge capital costs that impact traditional miners. It enjoys cash flow and profits as its mining partners finance and complete exploration and expansion projects. That cash flow enables it to invest in new deals, pay a dividend, and operate debt free. Franco-Nevada has increased its dividend each year since its IPO in 2008.

International Business Machines (IBM) is a blue-chip artificial intelligence (AI) and India play with a nice dividend yield. Known as “Big Blue,” IBM now primarily helps businesses and governments manage their information technology in the cloud era. The stock sells at a discount to the S&P 500 multiple and the information technology sector’s forward earnings multiple. IBM has paid a dividend every quarter since 1916 and has had 29 consecutive years of dividend increases.

Luckin Coffee (LKNCY) is a leading purveyor of coffee and specialty drinks in China. The price of a cup of Starbucks coffee is more than double that of Luckin coffee. In addition, Luckin is adept at adapting to local tastes and launching new products that broaden the market. For instance, it brings to market about 60 new products each year, offering a new drink every week. Its new coconut latte sells nearly $140 million worth annually. All this shows in the numbers as Luckin’s latest quarter revealed strong sales and store count growth.

Watch List: MOOG (MOG-A) supplies advanced primary flight controls on the most modern military aircraft. That includes the Lockheed Martin F-35 Lightning II and the Future Long Range Assault Aircraft program. The company’s major platforms include the 787, A350, Joint Strike Fighter (F-35 Lightning II). The company also supplies primary flight controls for the Boeing 787 and Airbus A350 widebody aircraft, as well as business and regional jets from Embraer (ERJ) and Gulfstream, owned by General Dynamics (GD).

Sea Limited (SE) has three core businesses: 1) digital gaming/entertainment, 2) e-commerce, and 3) digital payments and financial services, known as Garena, Shopee, and SeaMoney, respectively. Garena is a leading global online games developer and publisher. Shopee is the largest e-commerce platform in Southeast Asia and Taiwan. SeaMoney is a leading digital payments and financial services provider in Southeast Asia.

Subaru (FUJHY), based in Tokyo, Subaru holds a 10% market share in Japan, making it the third-largest automaker in the country. In America, the Subaru brand has a cult-like following and Subaru’s stock sells for only five times trailing earnings and about 70% of book value. It also sports a 3.5% dividend yield, has a market value of $14.4 billion and has a strong balance sheet with a net cash position of $7 billion.

Visa (V) doesn’t extend credit but provides the plumbing for financial payments and communications throughout the world. Visa’s financial infrastructure also underpins much of the world’s commerce. The duopoly between Visa and Mastercard is often referred to as one of the best businesses in the world, with insurmountable moats, low operating costs, and plenty of opportunities for unlocking additional value. Visa currently trades at a discount to its archrival MasterCard.

The next Cabot Explorer issue will be published on April 10, 2025.

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