Why I’d buy this gold stock

I believe that investing in gold stocks remains a good idea as inflation heads through the roof. And I’m thinking of doing this by loading up on Chaarat Gold (LSE: CGH) shares.

Bullion is a popular safe-haven asset when rampant inflation shakes confidence in the true value of paper currencies. With inflation rocketing, it seems that gold prices could have much further to run, boosting profits at mining companies like this. Latest consumer price inflation data from the UK showed a 6.2% rise in February. This was higher than the expected 6%.

Chaarat Gold produces the yellow metal from the Kapan operating mine in Armenia. Encouragingly, this is a project from which production  comfortably beat forecasts in 2021. Chaarat also owns the Tulkubash and Kyzyltash projects in Kyrgyzstan which are under development.

Investing in smaller gold mining stocks can be dangerous business. They don’t have the financial resources of major operators and this can have disastrous consequences if they encounter exploration, development or production problems.

Still, I think the encouraging outlook for gold prices still makes Chaarat a penny stock to buy. Singapore’s United Overseas Bank thinks the precious metal will end 2022 at $2,200 per ounce, up around 15% from current levels. The current record for gold prices set in August 2020 sits around $2,070 per ounce.

A top renewable energy stock to buy

When talking about renewable energy stocks, images of wind farms and solar panels spring immediately to mind. However, these aren’t the only technologies that will have a large part to play in the green energy revolution. And this is where penny stock Velocys (LSE: VLS) comes in.

Velocys builds technology that transforms household, commercial and forestry waste into sustainable fuels. These fuels are then used to power the heavy goods transport and aviation sectors. Not only does Velocys’ product help reduce harmful emissions entering the atmosphere, it is also getting rid of rubbish that would otherwise be dumped in landfill sites.

Encouragingly, Velocys has inked some significant contracts in recent months which authenticates the commercial potential of its technology. In November, for instance, it signed multi-year agreements with British Airways owner IAG and Southwest Airlines to supply a cumulative 767 gallons of blended sustainable aviation fuel.

There is danger in investing in Velocys, naturally. First and foremost the Bayou Fuels biorefinery project in Mississippi, USA, is yet to be built. Any development issues here could threaten planned first production in 2026 and decimate earnings forecasts. They could also prompt Velocys to tap shareholders for cash, or rack up debt to keep the project going.

Still, I think the long-term benefits of owning this stock could outweigh the risks. It’s one I’m seriously considering for April to capitalise on the green energy revolution.

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One I’d buy

The first is The Renewables Infrastructure Group (LSE: TRIG), or TRIG for short. It’s an investment company specialising in renewable energy assets. Shareholders benefit from quarterly dividends, and TRIG aims to grow this each year. The net asset value of the portfolio has also increased since the initial public offering in 2013. This can provide capital returns for shareholders too.

TRIG’s portfolio is diversified across solar and wind infrastructure assets, with a small allocation to battery storage technology. I do note that onshore wind represents 58% of the portfolio at present. I’d like to see it expand its other renewables assets exposure to diversify the portfolio even more.

Indeed, it recently announced it was acquiring four solar panel sites in Spain. It’s going to more than double its exposure to solar energy, which is a positive sign in my view.

Nevertheless, it’s the first investment in Spain, and required the issue of over 161m shares to fund the acquisition. There’s a risk that the acquisition doesn’t work out, or that it overpaid, which would destroy shareholder value.

But taking everything into account, I’d add the shares to my portfolio today.

And one I’m watching

The next renewable energy stock is Velocys (LSE: VLS). It’s a company that I have on my watchlist right now. I see the huge potential, but it’s still early-stage and comes with high risk.

Velocys develops sustainable fuels made from waste materials, particularly for the heavy goods transportation and aviation sectors. Therefore, replacing crude oil as an energy source in these sectors would improve air quality, and reduce carbon-based emissions.

The company announced two agreements with Southwest Airlines and International Consolidated Airlines last year that look significant. Velocys says they have the potential to generate “multi-billion revenues”. And collectively, almost 9m tonnes of carbon emissions could be avoided by using its sustainable fuels instead.

Some caution must be noted here though. For example, the sustainable fuel is to be produced at the Bayou Fuels plant, which is still only in development as it stands.

But I do still see the potential here. Velocys could be a solution to replace fossil fuels for our transportation sectors. For now though, as it’s still in the development stage and loss-making, I’m keeping it on my watchlist.

The post Renewable energy stocks: 1 to buy and 1 to watch! appeared first on The Motley Fool UK.

I’ve written about a penny stock in the FTSE 100 before, and about some that I think show potential for strong growth.

Buying penny stocks is just like investing in any other shares. So, here’s how I buy them, and one that I think could explode from here.

Buying penny stocks

When buying any stock, I always use my Stocks and Shares ISA. There’s a great article on The Motley Fool describing what this is. In summary, it’s a tax-efficient wrapper that shelters all investment gains from tax. This includes capital gains and income. That’s it really. Buying shares in an ISA is just like any other trading account, just with the tax benefits.

Then I use an online execution-only broker account. There’s another great article on The Motley Fool that compares these platforms here. I use Interactive Investor, which is described on the link I shared. I can buy penny shares on this platform, but there are others worth considering.

A penny stock with huge potential

This brings me to a penny stock I’ve been researching lately. It’s Velocys (LSE: VLS), and is currently valued at almost £120m, but with a share price of 11p at time of writing. The stock is up a huge 120% over one year, but I think it might just be getting started.

The company’s technology enables sustainable fuels to be made from waste materials for aviation and heavy goods transport. The fuels are high-quality, which means no changes are required to existing engines. It’s a great play on ESG (Environmental, Social and Governance) investing because the technology helps to achieve net zero emissions and improve air quality.

Just last week, potential game-changing agreements were announced with AIG and Southwest Airlines. Velocys will produce its sustainable aviation fuel for these airlines at the Bayou Fuels plant it’s developing in the US. The agreements combined cover 292m gallons of sustainable aviation fuel, extending over a minimum of 10 years beginning in 2026.

According to Velocys, the agreements have the potential to generate multi-billion revenues over the life of the contracts. An estimated 8.7m tonnes of carbon dioxide emissions will also be avoided.

Risks ahead for this penny stock

There’s clearly huge potential in these two agreements alone. But the Bayou Fuels plant is still only in development, and is a first of its kind for Velocys. There can be no guarantee of success. But management remains confident that the plant will be ready for delivery of the fuel by 2026.

The agreement with AIG is also non-binding, so there’s further risk that this doesn’t go ahead exactly as planned.

Velocys is also loss-making and hasn’t been able to generate consistent revenue. Before I buy the shares, I have to be confident that the recent agreements will be a turning point for the company’s financial performance.

Final thoughts

On balance, I think it’s a touch early for me to buy this penny stock. I’m going to watch how the Bayou Fuels plant develops, but I’m encouraged by the recent agreements.

The post How I’d buy penny stocks, and 1 with HUGE potential! appeared first on The Motley Fool UK.

Timber titan

The soaring price of raw materials makes Woodbois Limited (LSE: WBI) an attractive buy, in my view. This penny stock produces, manufactures and supplies sustainable African hardwood and hardwood products. Latest financials showed revenues rocketed 41% during the three months to September, a result also driven by record quarterly production of sawn timber and wood veneer.

Woodbois is flying, but I don’t think it’s just a flash in the pan. I expect demand for its raw materials to steadily rise as the economic recovery clicks through the gears. It also continues to grow its land holdings to meet future demand and, in the third quarter, added 71,000 hectares of forest to its holdings in Gabon. I think the stock’s a great buy, even though militant activity in Mozambique could cause problems for its operations there.

A formidable UK food share

I think having exposure to emerging markets is a critical element of any winning portfolio. These regions promise plenty of growth potential for companies as population levels and disposable incomes rise rapidly. Edita Food Industries (LSE: EFID), which manufacturers a broad range of snack foods, is a penny stock I’d buy to capitalise on these fast-growing markets.

Edita is a big player in the Egyptian food sector, putting it in the box seat to exploit soaring demand for edible goods. Revenues in the country’s food market are tipped to grow at a heady compound annual growth rate of 7.1% though to 2026, according to Statista.

However, Edita’s markets are highly competitive so explosive sales growth is far from guaranteed. Still, I’m confident that the exceptional brand power of its goods should help it come out slugging.

A penny stock for the energy revolution

Getting in on the energy transition phenomenon offers plenty of opportunity for UK share investors too. With the climate emergency worsening, governments and big business are stepping up attempts to switch from fossil fuels and towards sources with lower emissions. This plays into the hands of alternative fuel provider Velocys (LSE: VLS).

This UK share produces fuels for aeroplanes and heavy goods vehicles from household and corporate waste and wood waste that can be found on the forest floor. Velocys recorded revenues of £8.2m between January and June, thanks to its first major customer contract, up from £200,000 a year earlier.

US lawmakers are introducing legislation to boost the use of sustainable fuels by the aviation sector, a development that should help Velocys rack up additional significant contracts. I think this penny stock’s a great buy, despite the threat posed by other low-carbon technologies to those of the company.

The post 3 penny stocks to buy for 2022 and beyond! appeared first on The Motley Fool UK.

#1: Investing in the low-carbon future

The worsening climate crisis is prompting global legislators to get their skates on to reduce carbon emissions. And I believe this provides ample investment opportunities for UK share investors. I can invest in platinum miners, for example, whose material is used in catalytic converters. I can buy shares in investment companies which build wind farms, too. Or I can invest in businesses that make parts for energy storage technology at solar power plants. In truth, the list is vast.

One green UK share on my watchlist today is Velocys (LSE: VLS). This company turns household waste and forest residues into biofuels that are used in heavy goods transport and air travel. A word of warning, though: Covid-19 lockdowns and their impact on aviation traffic, allied with the impact of restrictions on broader economic conditions, could deal some damage to Velocys’s profits column in the near term.

#2: Another green machine

Speaking of green shares, I think TI Fluid Systems (LSE: TIFS) is another top UK stock to buy for the 2020s. This is because it manufactures fluid-carrying systems that are used in cars. Electric vehicles require much more of this sort of hardware, and sales of these low-carbon vehicles are shooting through the roof. Global sales of cars using electric technology soared 43% in 2020 to more than 3m units.

A word of warning, though. Price is still a barrier when it comes to purchasing an electric-based vehicle, of course. A prolonged pandemic, and a subsequent long downturn in the global economy, therefore, could damage sales of these cleaner cars in the short-to-medium term. This could deal a significant blow to TI Fluid Systems’s bright growth outlook. City analysts are expecting a 300% rise in annual profits in 2021, but forecasts can change. And a sharp share price correction could follow as a result.

#3: A top UK tech share

The number of cyber attacks has ballooned over the past decade. And the events of 2020 have widened the scope for hackers and fraudsters to have a field day in the future. The pandemic, for instance, has lit a fire under the online shopping segment and the number of people who choose to work from home.

This provides UK shares that provide cybersecurity to companies and individuals with ample revenues opportunities. Stocks like Avast (LSE: AVST), which provides protection in the home, at the workplace, and to mobile and broadband network providers too. Investors need to be remember, though, that hackers are becoming more and more sophisticated, and particularly as state-sponsored activity is on the rise. A high-profile failure of Avast’s systems could deal a hammer blow to the take-up of its products, and to its share price as a result.

The post I think these are 3 of the best UK shares I could buy this decade! appeared first on The Motley Fool UK.

Velocys share price turbulence

Oxford Catalysts was set up to create renewable fuel out of biomass and waste. It then acquired Velocys from a US department of energy research laboratory. Velocys had reactor technology conceived for space colonisation, which could be adapted and was exactly what Oxford Catalysts needed to bring its renewable fuel dream to market. In 2017, Velocys transitioned from being a tech company to focus on renewable fuels. 

At its IPO, the Velocys share price enjoyed a trade high of £2.18 but it only briefly reached those dizzy heights again in early 2014. The company’s valuation is currently around £85m. It has a debt ratio of 25%, a negative price-to-earnings ratio, and no dividend yield.

The Velocys share price is up 275% year-to-date but has dropped 55% since its June high of 14.8p. These massive fluctuations both make and break investors, so it is not a stock for the faint of heart. That being said, I think VLS shows potential as an investment.

Promising environmental solutions

Emerging from lockdown and getting back to a sense of normality is what the world is striving for. Saving the planet in the process would be an added bonus. Reducing waste and carbon emissions are two of the world’s most sought-after solutions as climate change looms over policymakers everywhere. This puts the company in the enviable position of potentially solving not one but two major environmental problems.

Commercialising scientific breakthroughs is never easy, and there are many hurdles to overcome before turning a profit. However, a combination of climate change fear and the pandemic may provide the catalyst needed for the business to forge ahead and boost the Velocys share price.

Revenue streams

In June Velocys reported administrative costs had fallen, reducing its annual loss. It also confirmed British Airways owner IAG and Royal Dutch Shell had pledged £1m of funding for its Altalto waste-to-fuels project in Lincolnshire. At this facility it aims to produce enough fuel for 1,000 transatlantic flights a year and expects production to begin in 2025. Building the plant will probably cost between £350m and £500m. 

Revenue for the year fell from £0.7m to £0.3m according to unaudited figures. It makes its money from a mixture of revenue streams including licensing its technology, supplying reactors, catalysts, and technical services. This month it completed the manufacture and delivery of four reactors to Red Rock Biofuels, in Oregon, with the option to purchase two more reactors by the end of the year.

Going by its track record and the current state of the aviation industry, this stock comes with significant risk. Nevertheless, its potential to solve major industry problems makes me think it is one to watch.

The post The Velocys share price is fluctuating. Is this FTSE AIM All-Share stock a contrarian buy? appeared first on The Motley Fool UK.

However, the shares are up around 8% today on news from the company. So what’s changed and is the stock worth buying?

A good story

Most lossmaking firms have a good story and Velocys is no different. The firm is involved in plant that converts “low-value feedstocks,” such as natural gas, landfill gas or biomass, into premium products such as renewable diesel, jet fuel and waxes. It says its technology is protected by “several hundred” patents in more than 30 countries and is designed for smaller scales, combining super-active catalysts with intensified reactor systems.

Velocys tends to partner with other firms to establish standardised modular plants where the energy source exists and reckons its capabilities and extensive experience deliver a proven route to operation.

Today’s news is exciting. It signed a site option agreement with Adams County in Mississippi for its first US biorefinery to be located in Natchez, Mississippi. The firm says Adams County has offered economic development incentives estimated at the equivalent of $42m with the potential for additional incentives worth up to $15m via Mississippi’s Advantage Jobs Act and other statutory tax incentives. Adams County has also committed to pay around $4m relating to the land and upgrades to the site and local utility suppliers look set to bung in $1m to upgrade the site. On the face of it, the project looks well supported.

Ticking the boxes

Velocys says it chose the location for the new biorefinery because of an attractive regulatory and tax regime plus the availability of an abundant local supply of low cost forestry residue that will form the feedstock for the plant and transportation infrastructure that includes barge, rail and road. It also has accessible utilities, land that meets the criteria to support an industrial development such as space and terrain, and the presence of a local workforce skilled in servicing the forestry industry. Meanwhile the local community has facilities and amenities that will attract additional skilled personnel during construction and ongoing plant operations.

The 100-acre Natchez site became the preferred location after Velocys looked at operational, tax and incentive considerations relating to 12 locations over four states in the Southeast United States. None of that effort is wasted though because the directors reckon their analysis of the other locations “lays the foundation for future biorefineries.”

A route to profitability?

Meanwhile, the company says today’s announcement completes one of the work packages required for the US Department of Agriculture (USDA) loan guarantee application announced in June and the firm has started site permitting activities for the Natchez site. Chief executive David Pummell said in the announcement: “We look forward to updating our stakeholders on the progress of this transformational project in Mississippi.”

If this progress truly does prove to be transformational, we could see Velocys finally moving closer to profitability, so the firm could be worth your research time.

The post Should I pile into Velocys plc, up 8% today? appeared first on The Motley Fool UK.

The renewable fuel specialist advised that revenues more than halved during the six months to June, to £234,000 from £509,000 in the same 2016 period. And pre-tax losses ballooned to £10.6m versus £7.7m previously.

Velocys was whacked in large part by the impact of sterling’s slide over the past year, and it advised that it “incurs much of its expense in US dollars and has exposure to the US dollar exchange rate.” As a result the firm suffered an exchange-rate-related hit to the tune of £900,000.

Release fuels investor fears

As well as being prepared for further currency-related woes down the road, investors are also worried about funding issues over at the Oxford business.

It tapped shareholders for £10m in May “to fund the pre-FEED (FEL-2) engineering study for the first biorefinery, to undertake a joint technology demonstration with our partner TRI, and to extend Velocys’ loan arrangement with ENVIA to support the plant in achieving steady state operations.” However, Velocys has advised that it will require additional funding to get its bio-refinery in the US up and running.

The City had already been expecting Velocys to chalk up losses before tax of £14.4m in 2017, but this forecast is likely to receive a hefty downgrade in the wake of today’s release.

And the very real possibility that the pound could continue to struggle, and more operational issues transpire that could whack revenue growth, may also cause the estimated loss of £6.8m pencilled in for 2018 miss to the downside.

In my opinion there is still far too much uncertainty circulating around Velocys right now, and as a result I for one won’t be investing.

Strap in and make a mint

Instead, I would much rather throw my hard-earned cash at industrial bolt and fastenings specialist Trifast (LSE: TRI).

Thanks to the hard work the Uckfield business has put into developing relationships with blue chip OEMs across the globe, and the strength of key sectors like automotive, industrials and electronics, the company continues to enjoy resplendent organic revenues growth in its territories. And Trifast is giving the top line an extra boost through its ambitious M&A strategy — it identified two targets in the first half but withdrew interest “due to their lack of strategic future-proofing” — and the vast sums it is investing in its existing operations.

In its latest trading statement the business advised last week that “our visibility and order pipeline remains very encouraging, whilst our balance sheet is strong,” and this encourages me that the firm can meet sprightly broker projections. Current estimates speak of a 20% earnings boost in the 12 months to March 2017, and an extra 3% rise for 2018.

I reckon Trifast is a great share pick right now given its robust sales momentum and successful self-help programme, not to mention its undemanding prospective earnings multiple of 16.3 times.

The post Why I’d ditch this falling knife to buy this small-cap growth stock appeared first on The Motley Fool UK.

With that in mind, here is one stock which may be worth buying, and one that seems to be worth avoiding right now.

Improving outlook

Tuesday’s update from Amec Foster Wheeler (LSE: AMFW) showed that the company is making good progress ahead of its expected merger with Wood Group. Amec Foster Wheeler delivered robust performance in what remains a challenging industry in which to operate. The energy support services company ended the year with its net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) covenant ratio at 3.3x. This is within the restated covenant agreed with lenders of 4.5x.

The company’s non-core asset disposal programme is on track and this could help to improve its risk/reward ratio. Cost-saving measures may also improve its financial performance, while the expected synergies from the Wood Group merger may lead to a stronger combined entity in the long run.

Certainly, the Oil & Gas industry remains highly uncertain and volatile. However, with the scope for a rising oil price over the medium term as supply reductions start to bear fruit and a sound business model, Amec Foster Wheeler could be a relatively strong performer. Therefore, buying it now in return for an expected 0.75 shares (for each Amec Foster Wheeler share) in the new Wood Group could prove to be a shrewd move.

Opportunity costs

While the outlook for the energy sector is uncertain, there are a number of high-quality stocks with improving profitability trading at low valuations. Therefore, there seem to be a number of opportunities to profit in the long run. This means that investors may not need to buy higher risk shares, or stocks which are failing to deliver profitable performance at the present time. The opportunity costs of buying such companies may be high.

One such company is Velocys (LSE: VLS). It is focused on producing synthetic fuels, which could prove to be a highly profitable space. In fact, in its half-year results the company said it was making good progress with the commissioning and operational start-up of the ENVIA plant, while strategy changes and prudent cost management could help to improve its financial performance over the medium term.

However, with it forecast to remain a loss-making entity in each of the next two years and being a relatively small company, there may be superior risk/reward opportunities elsewhere within the energy sector. Velocys may lack the size and scale advantages of larger sector peers, while the potential for improvements in the outlook for the wider energy sector could lift the valuations of stocks which are able to generate rising profitability in the next couple of years.

The post One ‘recovery’ stock I’d buy, and one I’d avoid appeared first on The Motley Fool UK.

Signs are abound that commodity prices are unlikely to make a rapid recovery. Slowing emerging-market growth, increasing global production of raw materials and a stronger US dollar all point towards further downward pressure on commodity prices.

BHP Billiton (LSE: BLT) has seen the value of its shares fall 44% since the start of 2015, as underlying earnings decreased by 52% in the year. But BHP has taken advantage of its low-cost production base to reduce the impact of lower commodity prices on profits by expanding production.

During the year, petroleum output rose 4%, iron ore production climbed by 14%, whilst copper production was broadly flat. In addition, the company has exceeded analysts’ expectations in cutting costs, which will lessen the impact of declining commodity prices.

Free cash flow generation has been comparatively resilient, having fallen just 26%. And this has meant that BHP has, so far, been able to maintain its progressive dividend policy. It raised its final dividend by 2% to $1.24 per share.

However, BHP’s dividend yield of 10.5% indicates that the market is not confident that its dividend is sustainable for much longer. The outlook for lower commodity prices means BHP is unlikely to match its cash flow needs for capital investment and ongoing dividend payments with incoming operating cash flow.

With earnings set to fall another 58% in 2015/6, its valuations are not cheap either. Although shares trade at a P/E of 9.9, its forward P/E is 24.0.

Rio Tinto‘s (LSE: RIO) dividend is in better shape, as it has a much lower level of indebtedness. Rio’s net debt to adjusted EBITDA ratio is just 0.64x, compared to BHP’s figure of 1.11. Rio’s profitability has also been less hard hit by the slump in commodity prices this year.

But one major drawback of investing in Rio is its much larger reliance on iron ore, which accounts for more than 85% of its underlying earnings. Its overexposure to a single commodity means Rio is more vulnerable to changes in iron ore prices. However, these risks should be offset by its more attractive valuations.

Rio Tinto is expected to see its earnings fall by 48% in 2015, but this still leaves Rio trading at a reasonable forward P/E of 12.1. Rio’s forward dividend yield of 7.1% may not seem as attractive as BHP’s, but it does seem more secure.

In conclusion, shares in BHP and Rio could fall quite a bit further if commodity prices continue to weaken. But, as BHP and Rio are low-cost producers and both have relatively strong balance sheets, further declines in prices would force their less competitive rivals out of the market, lending some support to future prices. And this should mean these two mining giants don’t have too much further to fall.

Unfortunately, the same could not be said for the gas-to-liquids (GTL) energy company, Velocys (LSE: VLS). Velocys, which is using GTL technology to convert relatively more abundant gas hydrocarbons into their more expensive liquid forms, has seen lower oil prices undermine its investment case for converting shale gas into petroleum products.

But Velocys is already adapting to changing business conditions. Many opportunities exist to produce high-value speciality products, such as waxes and lubricants, even with lower fuel prices. In addition, GTL technology can take advantage of low-cost feedstocks, including waste and landfill gases, which have no current use, as they have until now been uneconomic to process.

Shares in Velocys are very volatile, but if its technologies are found to be commercially viable then the potential rewards of investing are enormous, too.

The post How Much Further Can Shares In BHP Billiton plc, Rio Tinto plc & Velocys plc Fall? appeared first on The Motley Fool UK.