We’ve been hearing about inflation a whole lot, and it has sent tech stocks spiraling. But there are some companies that have benefited from inflation and could continue to do so, and the Professor, Mike Parks, has identified just the one!
The Professor, Mike Parks, is Raging Bull’s Senior Training Specialist.
Mike is a veteran trader and educator, and is adding a level of insight to Total Alpha that can only come from decades of experience in trading and market education.
Mike has incredibly knowledgeable on all things markets and his talent for teaching new traders how to use market signals to choose the right options strategies is unmatched.
When high-growth tech stocks that make no profit began selling off last March and have continued to crash, there was a lot of money rotated into the commodities sector. Demand for lithium-ion batteries and their necessary materials, such as nickel and lithium, has led to demand for commodities. Worldwide money printing has led to inflation i.e. higher prices for raw materials, and who benefits from this? The miners of these raw materials!
I’ve got some friends over in Australia, and over the last year, they’ve had a commodities boom down under, as nickel stocks and other miners have made all-time highs. One of the world’s largest mining companies is Rio Tinto (RIO), and right now, it’s looking like it could break out!
Fundamentals
Rio Tinto Group (RIO) engages in exploring, mining, and processing mineral resources worldwide. The company offers aluminum, copper, diamonds, gold, borates, titanium dioxide, salt, iron ore, and uranium.
As we can see from the chart above RIO’s revenue and income has been growing significantly over the last 2 quarters. They have grown revenues from $44.61 Billion in Q1 2021 to $58.33 in Q3, representing almost a 30% increase over that period. They have also grown net income from $9.77Billion to $18.77Billion over this same period representing 100% growth. This boring old miner is growing its profits like a FAANG stock, some of whom are actually decelerating, just take a look at FB yesterday.
When there is a flight to safety, these profitable mining companies could see significant benefits from rising commodity prices and increased demand for Infrastructure projects and Lithium batteries.
Technicals
RIO
RIO is trading higher after the bulls stepped in near the $70 gap support level and defended their territory.
I’m looking for a quick pop higher from the Morning Star Candlestick Pattern with a trade back towards the highs of $77.91.
I want to pay attention to earnings that are scheduled on Feb 23rd and hopefully the trade is off before the announcement.
The Trade
Looking for a “risk 1 make 2” setup, where I can capture the quick move higher. I’ll use call options on this trade and I’ll look at the monthly Feb 75 calls. I’ll use a stop below the recent lows to exit my trade.
Bottom Line
I’m pretty sure someone once said there’s always a bull market somewhere! While tech stocks are crashing due to inflation, some mining companies are seeing their profits double!
RIO is showing great fundamentals as it is actually benefiting from inflation due to increased prices and demand for its minerals. The commodities boom could be just beginning, and RIO is be poised to benefit. The chart has been set up perfectly, and the Professor is using call options to make a trade into Feb 23rd earnings!
