Research from Water Tower Research, Water Tower Research

Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Thematic (Sector/Industry)

<h3>KEY HIGHLIGHTS</h3>
<ul>
<li>WTR-CMI last week.&nbsp;The market rebounded last week, with both the S&amp;P 500 (up 2.0%) and the Russell 2000 (up 1.6%) ending the week higher. Our WTR-CMI index outperformed the broader market by appreciating 2.9% during the week, led by a 27.3% gain by EAF, as the stock recovered from the prior weeks’ sell-off and benefited from the restart of its Mexican plant. Lithium stocks continued to underperform on concerns of a slower uptake of EVs given escalating costs and growing economic uncertainty, with LTHM, LAC, and ALB losing 2-4% of their value last week.</li>
<li>Herbicide optionality.&nbsp;Although EU member countries failed to agree on a one-year extension of&nbsp;marketing authorization for glyphosate—the workhouse of broad spectrum herbicides the world over—the College of Commissioners could now approve the rules of extension on its own to bridge the time to mid-2023 when the European Food Safety Authority’s (EFSA) reassessment of the active substance is expected to come out. Meanwhile,&nbsp;CTVA announced&nbsp;the launch of a new post-emergent broad spectrum herbicide formulation for corn that includes three non-glyphosate ingredients, as the ag industry is preparing for the future without glyphosate.</li>
<li>Europe’s commercial vehicle sales fail to recover.&nbsp;While the passenger vehicle market in Europe may have stabilized, with modest growth in the last two months,&nbsp;commercial vehicle registrations&nbsp;continued to decline in October and are down 16.8% YTD.</li>
<li>Canada’s EV sales lag.&nbsp;Despite an ambitious goal of 60% of new vehicle sales being EVs by 2030, the&nbsp;country is trailing other nations&nbsp;in EV adoption, and would need to see the EV sales pace pick up from ~100,000 annually in 2022 to 1 million by 2030, a 10-fold increase over eight years. To come even close, the country would need to invest in charging infrastructure and higher consumer rebates.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/313/140/original/image_82077716821669845010899.png?1669845013" class="editor-image img-responsive" data-smartkarma-image-id="313140"></figure>
<div class="content-remarks">
<p>Source: Y-Charts as of November 25 close</p>
</div>
<h2>Ag-Tech and Bio-Ag</h2>
<p>Acceptance of biologics continues to accelerate.&nbsp;Record-high agricultural input costs, especially those of the energy-dependent fertilizer sector, have been a source of concern for farmers the past two years. With the war in Ukraine continuing to limit some fertilizer availability due to anti-Russian and Belorussian sanctions and the high cost and limited availability of European energy due to the curtailment of Russian oil and gas imports, 2023 isn’t expected to offer much in the way of cost relief for the stressed farmer. However, a positive byproduct of this trend is farmers’ willingness to explore all options when it comes to reducing their input costs, while maximizing their fields’ yields. One way to accomplish that is through the use of biologics, such as bio-based soil conditioners, inoculants, and pesticides, which can result in&nbsp;lower use of fertilizers&nbsp;and other chemical-based crop inputs. Another area where biologics are making strong inroads is in seed treatment applications. We’ve previously written about BIOX’s ability, especially after merging with Marrone Bio Innovations, to offer farmers 100% biologic-based seed treatment options. Another private company, US based Indigo, recently commercialized a&nbsp;bio-based fungicide&nbsp;for use in seed treatment applications. We see growing acceptance of biological crop inputs by markets outside organic and produce farming, including those in row crops and cereals, as a sustainable driver of growth for bio-innovator companies such as BIOX and BHIL, as well as biotech divisions of ag-chem majors, such as FMC, CTVA, and AVD.</p>
<h2>Automotive &amp; Transportation</h2>
<p>Semiconductor shortage and COVID lockdowns continue to crimp auto production.&nbsp;Toyota, the world’s largest automaker,&nbsp;reduced its production plans for December&nbsp;and reduced its FY22 (Mar-23) annual production goal by half a million units, as semiconductor shortages and other supply chain issues stubbornly persist. Similarly, UK’s Jaguar-Land Rover&nbsp;announced reduced output&nbsp;at its UK factories through March 2023, likewise citing chip shortages as the reason. In China, repeated, severe, and often arbitrary COVID-related shutdowns, which are sparking significant unrest in the country, are also affecting companies’ abilities to operate in the region. VW recently&nbsp;lowered its annual sales target&nbsp;in China by 14% from 3.85 million units to 3.3 million, citing China’s zero-COVID policy for the expected shortfall.</p>
<p>With semiconductor and other supply-chain issues not expected to be resolved until late 2023 and with the spreading civil unrest in China and potential for severe government actions against its citizens resulting in further production disruptions and logistical snarls, the automotive industry, including the burgeoning EV sector, may experience slower-than-expected recovery/growth over the next six to nine months, suggesting continuing volume pressures on Tier-1 automotive suppliers, including automotive coatings manufacturers such as PPG and AXTA, as well as material suppliers such as FUL, AVNT, HXL, and others. Lower auto build rates and civil unrest may also constrain demand for steel, which would be a negative for EAF and MTX.</p>
<h2>Energy &amp; Battery Technology</h2>
<p>Welcome to the real world.&nbsp;We’ve repeatedly highlighted in our publications our concern with the growing influence of China as a hub for production of everything EV and renewable energy related, with the country controlling 60-100% of production of everything from graphite and lithium to battery components to finished batteries essential to EV and energy storage industries. It seems that geopolitical and supply chain realities exposed by the COVID pandemic and Russia’s invasion of Ukraine have finally woken up Western governments to these facts.</p>
<p>In our previous issues, we talked about the Canadian government’s efforts to remove Chinese influence from its domestic energy, battery, and materials industry. More recently, in Germany, the Association of German Chambers of Industry and Commerce is asking the government to develop new policies that would enable the country’s economy and its industries to&nbsp;lower their dependence of China. Already, Germany’s foreign ministry is considering&nbsp;tightening rules around disclosure&nbsp;of information and performance of stress tests for companies in various industries with exposure to China, including the automotive sector. As every action procures a reaction, the initiative may result in even greater difficulty for Germany’s auto OEMs in penetrating the Chinese EV market—the world’s largest at this moment—where Germany’s brands are already&nbsp;struggling to gain share. We believe even more can and needs to be done to reduce China’s control over the world’s ability to transition to new energy platforms, whether in transportation, or energy production.</p>
<p>A recent&nbsp;report from a US investment bank&nbsp;claims the US and EU can end their dependence on China for materials critical to this transition by 2030, based on estimates of required investments and government efforts to direct public funds toward this effort, such as the recently enacted Inflation Reduction Act in the US. While we find this goal not only laudable, but imperative, we are somewhat skeptical of the timetable, as funding is not the only limiting factor in the equation. As we repeatedly highlighted, achieving such goals would appear to necessitate a material revision of existing rules and regulations around mining and processing of metals and recycling end-of-life batteries. Unfortunately, from declaring lithium a carcinogen (as is being considered in the EU), to denying building permits at state and local levels, to sometimes frivolous activist groups’ lawsuits, to trying to delay development of new unconventional battery metal resources, to failing to develop an effective energy policy that would lead to lower energy (and thus production) costs, federal and state governments in the US and Europe seem to be moving in the opposite direction.</p>
<h2>Chemicals &amp; Materials Technology</h2>
<p>We have often maintained that the chemicals and materials industry is not only at the forefront of the efforts to improve the sustainability of manufacturing, lowering its carbon footprint and reliance on petrochemical raw materials, but producing products that enable their customers to do the same. While the plastics industry has been facing significant pressure in the court of public opinion when it comes to the industry’s impact on the environment, it is also the industry that is making the greatest strides in both improving its&nbsp;<a href="https://www.plasticstoday.com/automotive-and-mobility/polyplastics-signals-sustainability-goals?ADTRK=InformaMarkets&amp;utm_source=eloqua&amp;utm_medium=email&amp;utm_campaign=15_NL_PT_Automotive_Edit_Sub_20221123&amp;sp_cid=13872&amp;utm_content=15_NL_PT_Automotive_Edit_Sub_20221123&amp;sp_aid=25259&amp;sp_rid=25509727&amp;sp_eh=8c4df0147173401d7475f6b9df5d9c368c8605c08aa4346c2916fde1dbfaee68" target="_blank" rel="noopener">own sustainability </a>characteristics&nbsp;and providing solutions to improve and thereby accelerate sustainability in other industries, including the rapidly developing&nbsp;EV and charging infrastructure sectors.</p>
<p>We believe companies such as AVNT, LOOP, and FUL, among others, stand to benefit from these trends and opportunities and should be considered by investors looking to participate in the sustainability and energy transformation megatrends currently underway.</p>
<h2>Rating and Price Target Changes</h2>
<p>EAF –&nbsp;BMO raised its price target from $5 to $6 and maintained its Market Perform rating.</p>
<p>Recent Reports and Future Events</p>
<p>Westwater Resources, Inc. (WWR) – Fireside Chat: VP of Sales &amp; Marketing Jay Wago, December 13, 2022, at 11:30 am EST</p>
<p>TMC the metals company (TMC) – Management Series Report – Collecting Nodules and Scientific Data as Regulation Timeline Nears</p>
<p>TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need</p>
<p>Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look</p>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS

WTR-CMI last week.&nbsp;The market rebounded last week, with both the S&amp;P 500 (up 2.0%) and the Russell 2000 (up 1.6%) ending the week higher. Our WTR-CMI index outperformed the broader market by appreciating 2.9% during the week, led by a 27.3% gain by EAF, as the stock recovered from the prior weeks’ sell-off and benefited from the restart of its Mexican plant. Lithium stocks continued to underperform on concerns of a slower uptake of EVs given escalating costs and growing economic uncertainty, with LTHM, LAC, and ALB losing 2-4% of their value last week.
Herbicide optionality.&nbsp;Although EU member countries failed to agree on a one-year extension of&nbsp;marketing authorization for glyphosate—the workhouse of broad spectrum herbicides the world over—the College of Commissioners could now approve the rules of extension on its own to bridge the time to mid-2023 when the European Food Safety Authority’s (EFSA) reassessment of the active substance is expected to come out. Meanwhile,&nbsp;CTVA announced&nbsp;the launch of a new post-emergent broad spectrum herbicide formulation for corn that includes three non-glyphosate ingredients, as the ag industry is preparing for the future without glyphosate.
Europe’s commercial vehicle sales fail to recover.&nbsp;While the passenger vehicle market in Europe may have stabilized, with modest growth in the last two months,&nbsp;commercial vehicle registrations&nbsp;continued to decline in October and are down 16.8% YTD.
Canada’s EV sales lag.&nbsp;Despite an ambitious goal of 60% of new vehicle sales being EVs by 2030, the&nbsp;country is trailing other nations&nbsp;in EV adoption, and would need to see the EV sales pace pick up from ~100,000 annually in 2022 to 1 million by 2030, a 10-fold increase over eight years. To come even close, the country would need to invest in charging infrastructure and higher consumer rebates.

WTR-CMI WEEKLY PERFORMANCE


Source: Y-Charts as of November 25 close

Ag-Tech and Bio-Ag
Acceptance of biologics continues to accelerate.&nbsp;Record-high agricultural input costs, especially those of the energy-dependent fertilizer sector, have been a source of concern for farmers the past two years. With the war in Ukraine continuing to limit some fertilizer availability due to anti-Russian and Belorussian sanctions and the high cost and limited availability of European energy due to the curtailment of Russian oil and gas imports, 2023 isn’t expected to offer much in the way of cost relief for the stressed farmer. However, a positive byproduct of this trend is farmers’ willingness to explore all options when it comes to reducing their input costs, while maximizing their fields’ yields. One way to accomplish that is through the use of biologics, such as bio-based soil conditioners, inoculants, and pesticides, which can result in&nbsp;lower use of fertilizers&nbsp;and other chemical-based crop inputs. Another area where biologics are making strong inroads is in seed treatment applications. We’ve previously written about BIOX’s ability, especially after merging with Marrone Bio Innovations, to offer farmers 100% biologic-based seed treatment options. Another private company, US based Indigo, recently commercialized a&nbsp;bio-based fungicide&nbsp;for use in seed treatment applications. We see growing acceptance of biological crop inputs by markets outside organic and produce farming, including those in row crops and cereals, as a sustainable driver of growth for bio-innovator companies such as BIOX and BHIL, as well as biotech divisions of ag-chem majors, such as FMC, CTVA, and AVD.
Automotive &amp; Transportation
Semiconductor shortage and COVID lockdowns continue to crimp auto production.&nbsp;Toyota, the world’s largest automaker,&nbsp;reduced its production plans for December&nbsp;and reduced its FY22 (Mar-23) annual production goal by half a million units, as semiconductor shortages and other supply chain issues stubbornly persist. Similarly, UK’s Jaguar-Land Rover&nbsp;announced reduced output&nbsp;at its UK factories through March 2023, likewise citing chip shortages as the reason. In China, repeated, severe, and often arbitrary COVID-related shutdowns, which are sparking significant unrest in the country, are also affecting companies’ abilities to operate in the region. VW recently&nbsp;lowered its annual sales target&nbsp;in China by 14% from 3.85 million units to 3.3 million, citing China’s zero-COVID policy for the expected shortfall.
With semiconductor and other supply-chain issues not expected to be resolved until late 2023 and with the spreading civil unrest in China and potential for severe government actions against its citizens resulting in further production disruptions and logistical snarls, the automotive industry, including the burgeoning EV sector, may experience slower-than-expected recovery/growth over the next six to nine months, suggesting continuing volume pressures on Tier-1 automotive suppliers, including automotive coatings manufacturers such as PPG and AXTA, as well as material suppliers such as FUL, AVNT, HXL, and others. Lower auto build rates and civil unrest may also constrain demand for steel, which would be a negative for EAF and MTX.
Energy &amp; Battery Technology
Welcome to the real world.&nbsp;We’ve repeatedly highlighted in our publications our concern with the growing influence of China as a hub for production of everything EV and renewable energy related, with the country controlling 60-100% of production of everything from graphite and lithium to battery components to finished batteries essential to EV and energy storage industries. It seems that geopolitical and supply chain realities exposed by the COVID pandemic and Russia’s invasion of Ukraine have finally woken up Western governments to these facts.
In our previous issues, we talked about the Canadian government’s efforts to remove Chinese influence from its domestic energy, battery, and materials industry. More recently, in Germany, the Association of German Chambers of Industry and Commerce is asking the government to develop new policies that would enable the country’s economy and its industries to&nbsp;lower their dependence of China. Already, Germany’s foreign ministry is considering&nbsp;tightening rules around disclosure&nbsp;of information and performance of stress tests for companies in various industries with exposure to China, including the automotive sector. As every action procures a reaction, the initiative may result in even greater difficulty for Germany’s auto OEMs in penetrating the Chinese EV market—the world’s largest at this moment—where Germany’s brands are already&nbsp;struggling to gain share. We believe even more can and needs to be done to reduce China’s control over the world’s ability to transition to new energy platforms, whether in transportation, or energy production.
A recent&nbsp;report from a US investment bank&nbsp;claims the US and EU can end their dependence on China for materials critical to this transition by 2030, based on estimates of required investments and government efforts to direct public funds toward this effort, such as the recently enacted Inflation Reduction Act in the US. While we find this goal not only laudable, but imperative, we are somewhat skeptical of the timetable, as funding is not the only limiting factor in the equation. As we repeatedly highlighted, achieving such goals would appear to necessitate a material revision of existing rules and regulations around mining and processing of metals and recycling end-of-life batteries. Unfortunately, from declaring lithium a carcinogen (as is being considered in the EU), to denying building permits at state and local levels, to sometimes frivolous activist groups’ lawsuits, to trying to delay development of new unconventional battery metal resources, to failing to develop an effective energy policy that would lead to lower energy (and thus production) costs, federal and state governments in the US and Europe seem to be moving in the opposite direction.
Chemicals &amp; Materials Technology
We have often maintained that the chemicals and materials industry is not only at the forefront of the efforts to improve the sustainability of manufacturing, lowering its carbon footprint and reliance on petrochemical raw materials, but producing products that enable their customers to do the same. While the plastics industry has been facing significant pressure in the court of public opinion when it comes to the industry’s impact on the environment, it is also the industry that is making the greatest strides in both improving its&nbsp;own sustainability characteristics&nbsp;and providing solutions to improve and thereby accelerate sustainability in other industries, including the rapidly developing&nbsp;EV and charging infrastructure sectors.
We believe companies such as AVNT, LOOP, and FUL, among others, stand to benefit from these trends and opportunities and should be considered by investors looking to participate in the sustainability and energy transformation megatrends currently underway.
Rating and Price Target Changes
EAF –&nbsp;BMO raised its price target from $5 to $6 and maintained its Market Perform rating.
Recent Reports and Future Events
Westwater Resources, Inc. (WWR) – Fireside Chat: VP of Sales &amp; Marketing Jay Wago, December 13, 2022, at 11:30 am EST
TMC the metals company (TMC) – Management Series Report – Collecting Nodules and Scientific Data as Regulation Timeline Nears
TMC the metals company, Inc. (TMC) – Initiation of Coverage – Tapping Untapped Resource to Address Unmet Need
Westwater Resources, Inc. (WWR) – Company Update Report – Steady Progress Deserves a Closer Look
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.  The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Mat-Chem Notes For the Week Ended November 25, 2022

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

iShares Russell 2000 ETF / Technical Analysis

<ul>
<li>Since early-October we have discussed our expectation for a bear rally, targeting the 200-day MAs on the $IWM and $SPX; targets were hit (within 0.5% of hitting on SPX).</li>
<li>We are now seeing short-term uptrend breaks on the IWM and the DJIA; this is a good time to get defensive and/or take profits, as the 1.5-month rally appears over.</li>
<li>We expect more weakness in the weeks ahead, and we cannot rule out another test of the 2022 lows.</li>
</ul>


Since early-October we have discussed our expectation for a bear rally, targeting the 200-day MAs on the $IWM and $SPX; targets were hit (within 0.5% of hitting on SPX).
We are now seeing short-term uptrend breaks on the IWM and the DJIA; this is a good time to get defensive and/or take profits, as the 1.5-month rally appears over.
We expect more weakness in the weeks ahead, and we cannot rule out another test of the 2022 lows.


Time to Get Defensive After 1.5-Month Uptrend Breaks; High Yield Spreads Widening Much Like Mid-Aug.

<h3>KEY HIGHLIGHTS</h3>
<div>
<ul style="list-style-type: disc;">
<li>
<p>WTR-CMI last week. The markets reversed their direction last week, with both the S&amp;P 500 and Russell 2000 declining 3.3% and 2.5%, respectively. Our WTR-CMI index lost a more modest 1.1% of its value and continued to outperform the broader markets, despite a 17% drop in AVN T on disappointing guidance. The weaker outlook was also behind MTRN’s 16% loss and ECL’s 14.6% loss. NVGT, KOP, and FMC saw their stocks improve 12.2%, 10.3%, and 5.5%, respectively, on better guidance.</p>
</li>
<li>
<p>Auto build recovery continues, driven by NEVs. Major European economies saw accelerating Y/Y growth off easier year-ago comps in October, with both France and Germany posting double-digit gains. While sales of ICE and diesel vehicles in Europe declined 3-4% Y/Y in 3Q22, BEV sales grew 22%, as did hybrid vehicle sales (up 7%), with new energy vehicles (NEVs) representing 43% of new vehicles sold in the quarter. Despite Y/Y growth reemerging over the last two to three months, semiconductor shortages continue to affect the OEMs’ abilities to meet demand, a situation that is expected to persist into 2023, causing us to remain cautious on companies in our index with high exposure to autos and transportation, including <span style="font-size: var(--content-font-size);">PPG, AXTA, AVNT , FUL, and HXL among others.</span></p>
</li>
</ul>
<ul style="list-style-type: disc;">
<li>
<p>AVD finds another biologics partner . A VD continues to expand its capabilities in bio-based crop inputs by partnering with NewLeaf Symbiotics, a private company with a proprietary microbial library and a commercial soil inoculant.</p>
</li>
<li>
<p>LAC to split. LAC announced it will split into two companies—one focused on developing its Argentinian lithium resources, while the other will continue to concentrate on developing its Nevada reserves, allowing for more efficient capital deployment and decoupling of the Nevada project from earlier-stage LA T AM operations.</p>
</li>
<li>
<p>Paints &amp; coatings market growth projected. Despite the weak automotive market and signs of trouble in several construction markets, the paints &amp; coatings industry is still projected to grow at a healthy 7.6% CAGR (2021-2027), according to a Research and Markets report. SHW and RPM appear most likely to benefit from this growth, with PPG and AXTA possibly being longer-term plays once automotive headwinds subside.</p>
</li>
</ul>
</div>

KEY HIGHLIGHTS



WTR-CMI last week. The markets reversed their direction last week, with both the S&amp;P 500 and Russell 2000 declining 3.3% and 2.5%, respectively. Our WTR-CMI index lost a more modest 1.1% of its value and continued to outperform the broader markets, despite a 17% drop in AVN T on disappointing guidance. The weaker outlook was also behind MTRN’s 16% loss and ECL’s 14.6% loss. NVGT, KOP, and FMC saw their stocks improve 12.2%, 10.3%, and 5.5%, respectively, on better guidance.


Auto build recovery continues, driven by NEVs. Major European economies saw accelerating Y/Y growth off easier year-ago comps in October, with both France and Germany posting double-digit gains. While sales of ICE and diesel vehicles in Europe declined 3-4% Y/Y in 3Q22, BEV sales grew 22%, as did hybrid vehicle sales (up 7%), with new energy vehicles (NEVs) representing 43% of new vehicles sold in the quarter. Despite Y/Y growth reemerging over the last two to three months, semiconductor shortages continue to affect the OEMs’ abilities to meet demand, a situation that is expected to persist into 2023, causing us to remain cautious on companies in our index with high exposure to autos and transportation, including PPG, AXTA, AVNT , FUL, and HXL among others.




AVD finds another biologics partner . A VD continues to expand its capabilities in bio-based crop inputs by partnering with NewLeaf Symbiotics, a private company with a proprietary microbial library and a commercial soil inoculant.


LAC to split. LAC announced it will split into two companies—one focused on developing its Argentinian lithium resources, while the other will continue to concentrate on developing its Nevada reserves, allowing for more efficient capital deployment and decoupling of the Nevada project from earlier-stage LA T AM operations.


Paints &amp; coatings market growth projected. Despite the weak automotive market and signs of trouble in several construction markets, the paints &amp; coatings industry is still projected to grow at a healthy 7.6% CAGR (2021-2027), according to a Research and Markets report. SHW and RPM appear most likely to benefit from this growth, with PPG and AXTA possibly being longer-term plays once automotive headwinds subside.




Mat-Chem Notes for the Week Ended November 4, 2022

<h3>KEY HIGHLIGHTS</h3>
<div></div>
<ul>
<li>WTR-CMI last week.&nbsp;Reversing the prior week’s trend, the stock market pulled back last week following the release of disappointing inflation data, with the Russell 2000 and the S&amp;P 500 losing 4.5% and 4.8% of their value, respectively. Our WTR-CMI index of 30 chemicals and materials technology stocks underperformed the broader market by declining 7.2% for the week.&nbsp;EMN’s preannouncement&nbsp;of lower 3Q22 and 2022 expectations drove the stock down nearly 15% and eight of the 30 stocks in our index posted double-digit declines. With all stocks in our WTR-CMI index losing value last week, PKE, AVD, and CTVA delivered relative outperformance by declining less than 2%.</li>
<li>Even ag-chem majors are retrenching.&nbsp;While the overall tone of&nbsp;CTVA’s Investor Day&nbsp;held last week was positive, highlighted by the rollout of a robust R&amp;D pipeline and an announcement of additional $2 billion in share repurchases (on top of existing $1.5 billion authorization), management also laid out plans for&nbsp;coping with slowing economic growth and high inflation expectations&nbsp;by exiting 35 countries and trimming its workforce by 5%.</li>
<li>Tale of two regions.&nbsp;While US passenger vehicle sales in August edged up Y/Y and new&nbsp;car registrations in the EU&nbsp;grew by 4.4% last month,&nbsp;Y/Y growth of passenger vehicles in China was 36% in August&nbsp;following the end of a two-month lockdown of Shanghai and a reduction in the gasoline tax at the end of June. Although the remaining four months of 2022 will feature easy Y/Y comps, given the depressed state of the global auto industry at the end of 2021, slowing economic growth and high energy prices may keep the recovery muted, with questions remaining with respect to 2023. PPG and AXTA may therefore continue to underperform, given their large exposure to the automotive and transportation markets.</li>
<li>CMP stepping up its lithium game.&nbsp;Having previously previewed its ambitions of becoming a lithium supplier to the EV battery industry using its existing Salt Lake resources,&nbsp;CMP picked EnergySource Minerals&nbsp;as its direct lithium extraction (DLE) technology provider and announced a $252 million&nbsp;strategic investment&nbsp;by Koch Minerals &amp; Trading, LLC (KM&amp;T) to help finance Phase 1 of its lithium project.</li>
</ul>
<h3>WTR-CMI WEEKLY PERFORMANCE</h3>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/299/221/original/image_26154726621663790447378.png?1663790451" class="editor-image img-responsive" data-smartkarma-image-id="299221"></figure>
<h2>Ag-Tech and Bio-Ag</h2>
<p>September USDA report acknowledges reality.&nbsp;We recently highlighted the disconnect between the August USDA Crop Production Report and the boots-on-the-ground crop tour that implied much lower commodity grain expectations. Last week, the USDA released its&nbsp;September report, which reflected the crop tour’s findings and lowered its outlook for soybean and corn production by lowering the three main components:&nbsp;planted acre, harvested acres, and yield per acre. Weather pressures and challenges securing sufficient and timely quantities of fertilizers and pesticides may have been behind the reduction in productivity expectations for US farmers reflected in the report. Lower expected Brazilian crop and what appears to be lower-than-anticipated US production are likely to result in stable, if not higher, commodity crop prices, which would go a long way in helping US farmers deal with still-elevated input costs in the 2022-23 season. Also mitigating lower production is&nbsp;lower demand from industrial end markets, such as ethanol and biofuels, which are slowing due to the overall slowdown in the US economy and miles driven.</p>
<p>Farmers remain cautious.&nbsp;Creighton University’s Rural Mainstreet Index&nbsp;(RMI) reading for September improved somewhat from August’s reading of 44 to 46.3, marking the fifth straight month of readings under 50, with 50 being a growth-neutral outlook, signaling that US farmers are bracing for another difficult year and a downturn in economic activity. Supply chain disruptions and inflationary pressures for everything from inputs to fuel to equipment to land values continue to weigh on farmers’ minds. Farmers and bankers are now also bracing for escalating interest rates, even higher farm input costs, and drought. Higher expected crop values as mentioned above may help mitigate some of the cost pressures farmers will be facing, but high energy and natural gas costs constraining fertilizer and pesticide production and leading to their higher costs and still-snarled logistics may result in even greater scarcity of needed inputs, suggesting ag-chem companies such as CTVA, FMC, and AVD, as well as CF and MOS may continue to enjoy strong demand. It may also provide opportunities for companies offering different technologies, such as bio-based pesticides, seed treatment, and soil conditioning to expand their geographic and crop reach, as farmers look for every advantage and avenue to facilitate their production. This would be a positive for emerging bio-ag companies such as BIX and BHIL.</p>
<h2>Battery and Energy Technology</h2>
<p>EV growth spurs demand and drives higher metal prices.&nbsp;As EV growth continues to accelerate, supply of metals required to build EV batteries is barely keeping pace, driving metal prices higher as a result,&nbsp;with lithium carbonate prices in China&nbsp;setting a new record at just over $71/kg. Nor is lithium an exception. Brazilian mining company&nbsp;Vale expects nickel demand&nbsp;to surge 44% by 2030 from current levels, with most new supply coming from Indonesia, Canada, and Australia. The company also expects there to be a structural deficit of the metal even when factoring in current announced production and mining expansions. An emerging player with the potential to become the second-largest nickel supplier in the world in the mid-term and the largest in the longer term is a Canadian late-stage development company&nbsp;The Metals Company&nbsp;(NASDAQ: TMC), which is getting ready to commercialize undersea collection and processing of polymetallic nodules found in ocean depths between Mexico and Hawaii.</p>
<p>Working at cross purposes.&nbsp;We recently wrote about the disconnect between national governments’ efforts to expand and domesticate the sourcing and production of materials critical in enabling the EV and energy storage transformation on the one hand and local government agencies and NGOs doing their best to push “not in my back yard” agenda when it comes to mines, processing plants, and other facilities needed to support green energy goals. We previously highlighted the issues PLL is having in securing the permits needed to begin mining and processing lithium in North Carolina. Another development-stage lithium player running into similar NGO obstacles is LAC, which is facing strong opposition to its&nbsp;Nevada mine development from environmental groups and other NGOs. While Tesla CEO thinks mining is “relatively easy” compared with lithium refining competencies and is exploring&nbsp;Tesla getting into the lithium processing business, the fact remains that additional sources of lithium, whether by direct lithium extraction from brine à la CMP and LAC, spodumene mines, or expansion of brine extraction in the Andes, are sorely needed to decouple our dependence on China and other geopolitically sensitive neighborhoods. That means governments will need to rethink their approach to incentivizing domestic development of mine and processing plant resources.</p>
<h2>Chemicals and Materials News</h2>
<p>N.I.M.B.Y.&nbsp;Everyone wants a more sustainable world. Everyone wants less plastic and other pollution. But it seems nobody wants plants and facilities that can deliver on those wants in their neighborhood—Not in My Back Yard syndrome—at least not in developed countries with a strong NGO ecosystem. The problem goes beyond permitting new mineral and metal mines, processing plants, or refineries. Even scrap plastic sorting facilities are frowned upon. Just ask PureCycle Technologies’ (NASDAQ: PCT) CEO Dustin Olson, who has received a&nbsp;letter signed by 50 different NGOs&nbsp;requesting the company abandon its plans for a new plastic sorting facility in Florida.</p>
<h2>Rating and Price Target Changes</h2>
<p>ASH –&nbsp;Credit Suisse initiated coverage of the stock with an Outperform rating and $210 price target (PT).</p>
<p>CTVA –&nbsp;KeyBanc raised its PT to $72 from $64 and reiterated its Overweight rating; BMO raised its PT to $72 from $66 and reiterated its Outperform rating; JP Morgan raised its PT to $65 from $63 and reiterated its Outperform rating; Jefferies raised its PT to $77 from $70 and reiterated its Buy recommendation; Deutsche Bank raised its PT to $75 from $68 and reiterated its Buy recommendation.</p>
<p>EMN –&nbsp;Jefferies lowered its PT to $94 from $97 and maintained its Hold rating; Tudor Pickering lowered its PT to $98 from $105 and maintained its Hold rating; Stifel Nicolaus lowered its PT to $112 from $134 and reiterated its Buy recommendation; CFRA lowered its PT to $110 rom $115 and reiterated its Buy rating; Wells Fargo downgraded the stock to Equal Weight from Overweight and lowered its PT to $95 from $110; KeyBanc lowered its PT to $111 from $125 and reiterated its Overweight rating; Citigroup lowered its PT to $93 from $102 and maintained its Neutral rating; RBC lowered its PT to $82 from $97 and maintained its Sector Perform rating; Deutsche Bank lowered its PT to $95 from $115 and reiterated its Buy recommendation.</p>
<p>LTHM –&nbsp;Vertical Research downgraded the stock to Hold from Buy, despite raising its PT to $35 from $33.</p>
<p>PPG –&nbsp;Wells Fargo lowered its PT to $130 from $135 and maintained its Equal Weight rating.</p>
<p>SHW –&nbsp;Evercore ISI lowered its PT to $260 from $285 and reiterated its Outperform rating.</p>
<h2>Recent WTR Publications and Upcoming Events</h2>
<p>Management Series Report – Loop Industries Founder and CEO Daniel Solomita (NASDAQ: LOOP)</p>
<p>Management Series Report and 2Q22 Update for Westwater Resources (NYSE: WWR)</p>
<p>Initiation of Coverage – Westwater Resources (NYSE: WWR)</p>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS


WTR-CMI last week.&nbsp;Reversing the prior week’s trend, the stock market pulled back last week following the release of disappointing inflation data, with the Russell 2000 and the S&amp;P 500 losing 4.5% and 4.8% of their value, respectively. Our WTR-CMI index of 30 chemicals and materials technology stocks underperformed the broader market by declining 7.2% for the week.&nbsp;EMN’s preannouncement&nbsp;of lower 3Q22 and 2022 expectations drove the stock down nearly 15% and eight of the 30 stocks in our index posted double-digit declines. With all stocks in our WTR-CMI index losing value last week, PKE, AVD, and CTVA delivered relative outperformance by declining less than 2%.
Even ag-chem majors are retrenching.&nbsp;While the overall tone of&nbsp;CTVA’s Investor Day&nbsp;held last week was positive, highlighted by the rollout of a robust R&amp;D pipeline and an announcement of additional $2 billion in share repurchases (on top of existing $1.5 billion authorization), management also laid out plans for&nbsp;coping with slowing economic growth and high inflation expectations&nbsp;by exiting 35 countries and trimming its workforce by 5%.
Tale of two regions.&nbsp;While US passenger vehicle sales in August edged up Y/Y and new&nbsp;car registrations in the EU&nbsp;grew by 4.4% last month,&nbsp;Y/Y growth of passenger vehicles in China was 36% in August&nbsp;following the end of a two-month lockdown of Shanghai and a reduction in the gasoline tax at the end of June. Although the remaining four months of 2022 will feature easy Y/Y comps, given the depressed state of the global auto industry at the end of 2021, slowing economic growth and high energy prices may keep the recovery muted, with questions remaining with respect to 2023. PPG and AXTA may therefore continue to underperform, given their large exposure to the automotive and transportation markets.
CMP stepping up its lithium game.&nbsp;Having previously previewed its ambitions of becoming a lithium supplier to the EV battery industry using its existing Salt Lake resources,&nbsp;CMP picked EnergySource Minerals&nbsp;as its direct lithium extraction (DLE) technology provider and announced a $252 million&nbsp;strategic investment&nbsp;by Koch Minerals &amp; Trading, LLC (KM&amp;T) to help finance Phase 1 of its lithium project.

WTR-CMI WEEKLY PERFORMANCE

Ag-Tech and Bio-Ag
September USDA report acknowledges reality.&nbsp;We recently highlighted the disconnect between the August USDA Crop Production Report and the boots-on-the-ground crop tour that implied much lower commodity grain expectations. Last week, the USDA released its&nbsp;September report, which reflected the crop tour’s findings and lowered its outlook for soybean and corn production by lowering the three main components:&nbsp;planted acre, harvested acres, and yield per acre. Weather pressures and challenges securing sufficient and timely quantities of fertilizers and pesticides may have been behind the reduction in productivity expectations for US farmers reflected in the report. Lower expected Brazilian crop and what appears to be lower-than-anticipated US production are likely to result in stable, if not higher, commodity crop prices, which would go a long way in helping US farmers deal with still-elevated input costs in the 2022-23 season. Also mitigating lower production is&nbsp;lower demand from industrial end markets, such as ethanol and biofuels, which are slowing due to the overall slowdown in the US economy and miles driven.
Farmers remain cautious.&nbsp;Creighton University’s Rural Mainstreet Index&nbsp;(RMI) reading for September improved somewhat from August’s reading of 44 to 46.3, marking the fifth straight month of readings under 50, with 50 being a growth-neutral outlook, signaling that US farmers are bracing for another difficult year and a downturn in economic activity. Supply chain disruptions and inflationary pressures for everything from inputs to fuel to equipment to land values continue to weigh on farmers’ minds. Farmers and bankers are now also bracing for escalating interest rates, even higher farm input costs, and drought. Higher expected crop values as mentioned above may help mitigate some of the cost pressures farmers will be facing, but high energy and natural gas costs constraining fertilizer and pesticide production and leading to their higher costs and still-snarled logistics may result in even greater scarcity of needed inputs, suggesting ag-chem companies such as CTVA, FMC, and AVD, as well as CF and MOS may continue to enjoy strong demand. It may also provide opportunities for companies offering different technologies, such as bio-based pesticides, seed treatment, and soil conditioning to expand their geographic and crop reach, as farmers look for every advantage and avenue to facilitate their production. This would be a positive for emerging bio-ag companies such as BIX and BHIL.
Battery and Energy Technology
EV growth spurs demand and drives higher metal prices.&nbsp;As EV growth continues to accelerate, supply of metals required to build EV batteries is barely keeping pace, driving metal prices higher as a result,&nbsp;with lithium carbonate prices in China&nbsp;setting a new record at just over $71/kg. Nor is lithium an exception. Brazilian mining company&nbsp;Vale expects nickel demand&nbsp;to surge 44% by 2030 from current levels, with most new supply coming from Indonesia, Canada, and Australia. The company also expects there to be a structural deficit of the metal even when factoring in current announced production and mining expansions. An emerging player with the potential to become the second-largest nickel supplier in the world in the mid-term and the largest in the longer term is a Canadian late-stage development company&nbsp;The Metals Company&nbsp;(NASDAQ: TMC), which is getting ready to commercialize undersea collection and processing of polymetallic nodules found in ocean depths between Mexico and Hawaii.
Working at cross purposes.&nbsp;We recently wrote about the disconnect between national governments’ efforts to expand and domesticate the sourcing and production of materials critical in enabling the EV and energy storage transformation on the one hand and local government agencies and NGOs doing their best to push “not in my back yard” agenda when it comes to mines, processing plants, and other facilities needed to support green energy goals. We previously highlighted the issues PLL is having in securing the permits needed to begin mining and processing lithium in North Carolina. Another development-stage lithium player running into similar NGO obstacles is LAC, which is facing strong opposition to its&nbsp;Nevada mine development from environmental groups and other NGOs. While Tesla CEO thinks mining is “relatively easy” compared with lithium refining competencies and is exploring&nbsp;Tesla getting into the lithium processing business, the fact remains that additional sources of lithium, whether by direct lithium extraction from brine à la CMP and LAC, spodumene mines, or expansion of brine extraction in the Andes, are sorely needed to decouple our dependence on China and other geopolitically sensitive neighborhoods. That means governments will need to rethink their approach to incentivizing domestic development of mine and processing plant resources.
Chemicals and Materials News
N.I.M.B.Y.&nbsp;Everyone wants a more sustainable world. Everyone wants less plastic and other pollution. But it seems nobody wants plants and facilities that can deliver on those wants in their neighborhood—Not in My Back Yard syndrome—at least not in developed countries with a strong NGO ecosystem. The problem goes beyond permitting new mineral and metal mines, processing plants, or refineries. Even scrap plastic sorting facilities are frowned upon. Just ask PureCycle Technologies’ (NASDAQ: PCT) CEO Dustin Olson, who has received a&nbsp;letter signed by 50 different NGOs&nbsp;requesting the company abandon its plans for a new plastic sorting facility in Florida.
Rating and Price Target Changes
ASH –&nbsp;Credit Suisse initiated coverage of the stock with an Outperform rating and $210 price target (PT).
CTVA –&nbsp;KeyBanc raised its PT to $72 from $64 and reiterated its Overweight rating; BMO raised its PT to $72 from $66 and reiterated its Outperform rating; JP Morgan raised its PT to $65 from $63 and reiterated its Outperform rating; Jefferies raised its PT to $77 from $70 and reiterated its Buy recommendation; Deutsche Bank raised its PT to $75 from $68 and reiterated its Buy recommendation.
EMN –&nbsp;Jefferies lowered its PT to $94 from $97 and maintained its Hold rating; Tudor Pickering lowered its PT to $98 from $105 and maintained its Hold rating; Stifel Nicolaus lowered its PT to $112 from $134 and reiterated its Buy recommendation; CFRA lowered its PT to $110 rom $115 and reiterated its Buy rating; Wells Fargo downgraded the stock to Equal Weight from Overweight and lowered its PT to $95 from $110; KeyBanc lowered its PT to $111 from $125 and reiterated its Overweight rating; Citigroup lowered its PT to $93 from $102 and maintained its Neutral rating; RBC lowered its PT to $82 from $97 and maintained its Sector Perform rating; Deutsche Bank lowered its PT to $95 from $115 and reiterated its Buy recommendation.
LTHM –&nbsp;Vertical Research downgraded the stock to Hold from Buy, despite raising its PT to $35 from $33.
PPG –&nbsp;Wells Fargo lowered its PT to $130 from $135 and maintained its Equal Weight rating.
SHW –&nbsp;Evercore ISI lowered its PT to $260 from $285 and reiterated its Outperform rating.
Recent WTR Publications and Upcoming Events
Management Series Report – Loop Industries Founder and CEO Daniel Solomita (NASDAQ: LOOP)
Management Series Report and 2Q22 Update for Westwater Resources (NYSE: WWR)
Initiation of Coverage – Westwater Resources (NYSE: WWR)
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Dmitry Silversteyn, who is the writer of this report, covers the BioEconomy and Chemicals &amp; Materials Technology sectors for WTR. Mr. Silversteyn and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.  The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Mat-Chem Notes for the Week Ended September 18, 2022

KEY HIGHLIGHTS

WTR-CMI last week.&nbsp;The stock market continued to claw back from summer lows last week, with the S&amp;P 500 appreciating 3.3% W/W and the broader Russell 2000 posting a 4.9% gain. Unlike the previous week however, our WTR-CMI index of 30 chemicals and materials technology stocks outpaced both broader indexes with a 7.8% improvement, led by lithium stocks buoyed by continuing strong demand for EVs and&nbsp;sticky lithium prices that are expected to remain elevated. EAF, whose investors continue to digest the secondary offering, PKE, and AVD were the underperformers in our index last week.
AVNT’s transformation continues.&nbsp;The company announced an&nbsp;agreement to sell its domestic plastic Distribution business to H.I.G. Capital&nbsp;for $950 million in cash, or about 10x TTM EBITDA, a valuation reflective of the business’ strong market position in North America and industry-leading operating margins. Net proceeds of ~$750 million will be used to de-lever the balance sheet following the recent DSM acquisition.
ALB going all-in in North Carolina.&nbsp;The leading global lithium producer has&nbsp;plans for a mega-plant in North Carolina&nbsp;that would process 100,000 metric tons (mt) of lithium annually, using spodumene from the company’s Kings Mountain mine, other sources, as well as recycled material, once widely available. The project is in the pre-feasibility stage with a tentative date of 2029.
July Chinese new car sales show strong growth.&nbsp;It appears that&nbsp;July new passenger car sales in China increased 40% Y/Y&nbsp;as the country continues to recover from COVID lockdowns that crushed late spring demand. However, while&nbsp;new energy vehicle (NEV) sales were up a strong 129% Y/Y&nbsp;in the month, they were down M/M compared with a record June,&nbsp;while overall sales slipped 3% versus June. Also, YTD new passenger vehicle sales were still down 2% compared with the first seven months of 2021. Commercial vehicles were also down 22% Y/Y in July.
Seed treatment applications projected to grow.&nbsp;According to a&nbsp;new study by MarketsandMarkets, the seed treatment market is expected to grow at an 8.3% CAGR over the next five years, even faster for biobased ingredients, which is a positive for BIOX, which is building all-biobased seed treatment options.

WTR-CMI WEEKLY PERFORMANCE


Source: YCharts; August 12 close

Ag-Tech and Bio-Ag
A tough end to a tough season.&nbsp;In the 2021-22 ag season, farmers had to deal with skyrocketing prices for ag inputs, from seeds to fertilizers to pesticides, as well as surging diesel and gasoline costs, supply chain disruptions, and uncooperative weather. Despite all that, US farmers planted near-record acres and were expecting, with the USDA’s blessing, near-record yields for their row crops. However, late plantings, high heat, drought, and high winds appear to be taking the shine off bullish bushel expectations. In its August 12 report,&nbsp;the USDA&nbsp;reduced yield expectations for corn and raised them slightly for soybean, although the latter has drawn some skepticism and may or may not be confirmed with field tours. In fact, lack of rain appears to have affected crop conditions in&nbsp;Nebraska&nbsp;and&nbsp;Iowa, shaving off the more optimistic yield projections.
Despite still high commodity prices and, in our opinion, high likelihood that they will remain elevated into 2023, given global supply and food scarcity concerns, 2022 farmer income may be down more than 50% from a record 2021 due mainly to record price increases in crop inputs, fuel, and energy. A report from&nbsp;the University of Illinois forecasts&nbsp;that with input and farmland cost continuing to increase and revenues staying flattish, farm income in 2022-23 may decline as much as 80% compared with this year! That would not be good news for farmers or major suppliers in the ag industry, as it is difficult to imagine farmers maintaining their purchasing power and being able to afford the volume and price of inputs that they were able to handle this year. While this may provide opportunities for emerging biobased input companies, like BIOX and BHIL, to gain market share and expand their geographic and crop footprint, it may not be good news for ag input majors, such as CTVA, AVD, FMC, and CF, as they may experience demand destruction due to high prices, seed margin pressures from elevated energy and raw material costs, and may have to reduce their own prices to sustain demand.
Battery Materials &amp; Energy Transformation
China’s dominance remains conspicuous.&nbsp;While several companies are attempting to establish a presence in the EV battery industry, including some profiled in these updates,&nbsp;half of all batteries installed in 1H22 came from two Chinese companies—CATL and BYD—according to market research company SNE Research, underscoring China’s continued dominance and control over the EV industry supply chain, from lithium and graphite materials to cell and battery pack manufacturing. Although the country is the largest EV market, growing at the fastest pace, which helps explain the initial rush by global battery and materials players to establish operations in China, the COVID-induced supply chain disruptions, the war in Ukraine and its economic aftermath, and China’s increasingly aggressive posture toward Taiwan, APAC, and the West, have given industry players pause and led to increasing efforts to domesticate supply of critical materials and components, or at the very least diversify the supply away from China. Clearly, these efforts are still in the very early stages with few noticeable results as of yet. Nonetheless, we believe domestic suppliers, as well as those outside of China, will continue to receive more attention and capital from both existing and emerging battery manufacturers, as well as EV OEMs—Tesla’s recent contracts worth $5 billion&nbsp;with Indonesia’s nickel converters being but the latest example. We see these trends as being highly positive for companies looking to establish domestic lithium and graphite production, such as ALB, PLL, LAC, WWR, and NMG.
Yet another way to skin the EV battery cat.&nbsp;As the green energy industry continues to grow and evolve, new technologies, chemistries, and manufacturing methods are being explored and developed to help the world accelerate the transition to a non-fossil energy paradigm. Such efforts range from novel sources of lithium (like geothermal wells and the Great Salt Lake) to solid state battery technologies to novel battery cathode and anode chemistries. Yet another wrinkle being added is 3-D printing of batteries, as exemplified by&nbsp;Sakuu, a California-based developer&nbsp;of such technologies, which recently opened a new engineering center in Silicon Valley, having raised more than $60 million in funding earlier this year. Solid state batteries offer real advantages versus current EV battery technology, but efforts to successfully scale up pilot plant processes have so far fallen short of expectations. Nevertheless, the technology remains an attractive area of R&amp;D and perhaps the 3D printing approach can be the final piece of the puzzle to commercial production and industry acceptance.
Chemicals and Materials Technology in the News
Five- to 10-year growth prospects remain robust for many industry sectors.&nbsp;Used in everything from adhesives to coatings to composites, epoxy resins are an important part of the chemicals and materials industry. A recent report by Fact.MR, a market research and competitive intelligence provider, forecasts that the&nbsp;epoxy resin industry will experience a 6.9% CAGR over this decade, or more than twice the expected growth of global GDP, making the sector a clear GDP-plus grower, which should appeal to growth investors. Light-weighting in automotive and transportation applications, superior strength in wind and solar applications, and growing usage in construction applications are driving this strong growth. We see this as a positive for several companies in our index, including AVNT, FUL, HXL, and RPM, as well as commodity chemicals players such as DOW and HUN. The&nbsp;global plastics market, which is expected to reach nearly $800 billion in 2022 is projected to grow at slightly GDP-plus rate of 3.7% CAGR through 2032, driven by continuing product substitution and light-weighting trends and despite the increasing efforts to reduce or eliminate single use plastics. Within this massive markets, certain sub-sectors are expected to see even faster growth. Thus, the&nbsp;polyolefin elastomer and plastomer market&nbsp;is expected to grow at nearly double the rate of the plastics industry overall, or a 7.6% CAGR through 2031, reaching nearly $8 billion in sales by that time. And the much larger&nbsp;plastic market for automotive applications, which is valued at $31 billion annually, is expected to grow at a 5.3% CAGR and reach $45 billion by 2028. We see these trends as being highly beneficial to AVNT, a global leader in engineered plastics and composites. We also believe the growing trend toward recyclability and away from fossil-based raw materials will benefit companies such as Loop Industries, Inc. (NASDAQ: LOOP).
High prices and stalled economy are not a good recipe.&nbsp;Even as&nbsp;pricing dynamics for basic chemicals&nbsp;and raw materials are improving, as prices of commodities come off early summer highs, the global economic slowdown, and outright recession that may be overtaking developed countries in 2H22 are continuing to&nbsp;worry both company executives and investors. The chemicals and materials technology sector, situated between basic commodity chemicals producers and industry and consumer end-customers, may be better positioned to weather these headwinds versus other markets, as they are likely to continue to drive higher prices into the market in 2H22 and perhaps even 1H23, while seeing their RM costs begin to decline, at least sequentially. As these companies’ cost structure contain higher levels of variable versus fixed costs, the negative impact on margins of expected volume declines won’t be nearly as strong as the positive impact of shrinking RM-cost and selling-price spreads, helping margin recovery and driving higher valuations and stock prices in the process.
Circular economy.&nbsp;Speaking of packaging and single-use plastics, industry efforts continue to address the sustainability characteristics of packaging in general and plastic packaging in particular. Certainly a major force behind the evolution is the&nbsp;increasing government focus on the issue of sustainability and circular economy, with ever stricter regulations and out-year targets for carbon net-zero, and other societal initiatives. However, just as important is the voice of the consumer and business’ efforts to innovate to drive product differentiation in an increasingly competitive market segments. Coca-Cola’s drive to&nbsp;reinvent the water/pop plastic bottle with high recycled content, in some cases as high as 100%, is one such example. A new kid on the block—Loop Industries—whose technology allows for the production of virgin-quality PET resins from no- to low-value plastic waste specifically for beverage bottles and other packaging applications may stand to benefit from brand owners developing programs to meet regulatory goals on recycled content and circular economy. In fact, the company already has a success story with the 2022 launch of its branded Infinite LOOPTM&nbsp;PET resin bottle with Avian in South Korea and the more recent partnership with Danone.
Rating and Price Target Changes
ALB –&nbsp;Deutsche Bank raise its price target (PT) to $270 from $255 and reiterated its Buy recommendation.
CMP –&nbsp;Stifel raised its PT to $70 from $69 and reiterated its Buy rating.
CTVA –&nbsp;JP Morgan upgraded the stock to Buy from Neutral and raised its PT to $63 from $58; Roth raised its PT to $74 from $67 and reiterated its Buy rating; Citigroup raised its PT to $69 from $63 and reiterated its Buy rating; Deutsche Bank lowered its PT to $68 from $72 and reiterated its Buy rating; Mizuho Securities raised its PT to $69 from $68 and reiterated its Buy rating; RBC raised its PT to $72 from $67 and reiterated its Outperform rating; Berenberg Bank raised its PT to $66 from $58 and reiterated its Buy recommendation.
EAF –&nbsp;Citigroup lowered its PT to $7.50 from $10 and maintained its Neutral rating; Credit Suisse lowered its PT to $13 from $16 and reiterated its Outperform rating.
KWR –&nbsp;Deutsche Bank raised its PT to $210 from $175 and reiterated its Buy recommendation.
VVV –&nbsp;Citigroup lowered its PT to $35 from $37 and reiterated its Buy recommendation.
Recent WTR Publications and Upcoming Events
Upcoming Events
Fireside Chat with Management of Loop Industries, Inc. (NASDAQ: LOOP)
Recent Events and Publications
Management Series Report and 2Q22 Update for Westwater Resources, Inc. (NYSE: WWR)
Fireside Chat with Management of Westwater Resources (NYSE: WWR)
Initiation of Coverage – Westwater Resources, Inc.
Management Series Report – Marrone Bio Innovations CEO Kevin Helash
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Mat-Chem Notes for the Week Ended August 14, 2022

United States

H.B. Fuller Company manufactures and markets adhesives, sealants, coatings, paints, and other specialty chemical products worldwide.  The Company's products are sold in countries that include North America, Europe, Latin America, the Asia Pacific region, India, the Middle East and Africa.

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H.B. Fuller Co. (FUL US)

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