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If You Have a Crystal Ball, Northern Dynasty Minerals Is for You

I’m not entirely sure if Northern Dynasty Minerals (NYSEAMERICAN:NAK) classifies as one of those meme trades. However, a cursory look at StockTwits’ profile of NAK stock reveals some hallmark signatures.

a precious metals mining operation
Source: Shutterstock

Namely, there are attacks on other people’s intellectual capacity – mine will be called into question shortly – and all-around buffoonery. Nevertheless, sometimes you can find some gold (no pun intended) in the mud.

Is that the case, though, for NAK stock? After browsing through the colorful posts, I came away with two conclusions. First, bulls usually dominate social media forums about popular equity units. But in Northern Dynasty’s case, the bears seem to have plenty of moxie. Second, the one cogent argument I heard was that NAK is a short-squeeze candidate.

However, I didn’t say it was an accurate argument. According to data as of May 28, the short percentage of float was 4.25%, whereas the short ratio is 3.45 (basically, the number of days required to cover all the shares sold short assuming daily average volume).

Granted, the short percentage of float isn’t zero so there’s always a possibility that you could benefit from a short squeeze on NAK stock. But is it probable? You’ll forgive me but I’m skeptical. For instance, take a look at Workhorse (NASDAQ:WKHS). Previously, I basically argued that it’s no surprise that WKHS attracted bearish interest. Subsequently, Workhorse’s short percentage of float is nearly 38%.

So, if you were going to gamble on the short-squeeze argument, you’d think that the double-digit short percentage of float stocks would be better candidates. But does that mean there’s no hope at all for NAK stock?

I couldn’t say that either. After all, interest is sky-high for Northern Dynasty’s Pebble Project in Alaska. If the company receives the federal green light, it will invariably lift NAK stock. However, “if” is a difficult word.

NAK Stock Is a Coin-Toss Investment

Indeed, ifs stink. It’s a word both substantive and meaningless. And it’s exactly the reason why our own David Moadel wrote that NAK stock is an all-or-nothing trade for risk seekers. If that’s you, I suppose that Northern Dynasty might be an ideal play. But for everyone else, you’re going to want to think carefully about this. Moadel explained the situation as follows:

The Pebble Project is located near Bristol Bay in Alaska, in an environmentally sensitive area. And until Northern Dynasty gets permission from the U.S. Environmental Protection Agency (EPA) to drill for all of those minerals, it will be awfully difficult for the company to turn a profit – and for NAK stock to escape from Penny Stock Land.

Still, Moadel does bring up some interesting elements for NAK stock. Along with gold, the Pebble Project may offer a significant amount of copper. As you know, copper plays a vital role in the growing electric vehicle infrastructure story. And you know who else wants copper, specifically for building EVs?

If you guessed China, you win the prize (well, not really — it’s an obvious answer).

Therefore, Moadel reasons that it’s possible the controlling Democrats could ease up on their traditional pro-environmental stance. First, this action will stick it to China and because of that, it might even convince some political fence-sitters to vote Republican.

He admits it’s a stretch, but his speculation is as good as anyone’s until the truth comes out. The problem is, until it does, NAK stock resembles a lottery ticket. It just requires too many variables to account for.

The Juice Might Not Even Be Worth the Squeeze

To add another wrinkle to the narrative for NAK stock, the implications may not even play out favorably even if Northern Dynasty gets the green light. Sure, in the near term, you’d expect a boost for NAK. But in the long run, profitability is not guaranteed.

For instance, the steep decline in money velocity indicates the ineffectiveness of monetary and fiscal policies. This then suggests that deflation, not inflation, is our biggest threat. That might not be too helpful for NAK’s gold-based argument.

For copper, what if the EV build-out never quite pans out? If the economy tanks, people would much rather buy the proven and cheaper combustion platform over going electric. And in a down market, EV infrastructure development may slow to a crawl, deflating the copper price.

Again, the aforementioned point remains. There are too many variables to account for. If you like living dangerously, I suppose NAK might work. If not, you need to stay away from this one.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


Article printed from InvestorPlace Media, https://investorplace.com/2021/06/nak-stock-crystal-ball/.

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