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Analysts’ Ideas of the Week

Rising Bond Yields to Lower Equity Valuations

The electric vehicle space continues to be the most actively discussed among retail investors. We also noted a decline in discussion on cannabis stocks. Global equity markets retreated last week primarily due to rising yields from a major sell-off in the bond market, amid expectations of an economic rebound and rising inflation expectations. Rising yields typically result in lower equity valuations (from higher discount rates), and higher borrowing costs. The P/E ratio of S&P 500 is currently 22.2x vs the long-term average of 15.3x (Source: Refinitiv). As we do not expect an economic recovery until H2-2021, we expect a market correction, and the P/E ratio to revert to its historic average.

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Introducing Reddit Sentiment Tracker

This week, our analysts introduced a Reddit sentiment tracker to potentially identify mover for the company week. Our analysts have also started tracking the psychedelic industry’s performance, following launch of the Horizons Psychedelic Stock Index ETF on January 27, 2021.

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Silver or Silver Stocks?

Silver prices were up 7% today as the Reddit army shifted focus from GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC). Our top silver picks were up 15% on average. As for WoW performance, silver was up 14% vs 23% for our top picks.

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Biden’s Next Package Focused on Infrastructure to Boost Base Metals’ Demand

The pace of vaccine rollout is gradually picking up. Currently, 3.2% of the U.S. population has received vaccinations vs 2.5% at the same time last week. The U.S. is currently administering 0.8M doses per day. At this rate, we estimate it will take approximately six months to vaccine 25% of the U.S. population vs our last week’s estimate of eight months.

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EV and Cannabis Stocks Surge as Democrats Gain Control of the Senate

We believe there is a disconnect between market sentiment/valuations, and the surge in COVID-19 cases, and weaker than expected employment data in the U.S.As for the Cannabis industry, Canadian retail sales have shown steady growth, despite the pandemic. The number of Cannabis retail stores increased 206% YoY to 1,384 by December 2020. We believe there is room for at least 2,200 more retail stores in the country.

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Slow Rollout of Vaccines to Delay Economic Recovery

As restrictions are unlikely to be relaxed until there is a decline in new cases, we expect base metal prices to be under pressure. We expect the US$ to stabilize at current levels as we believe the chance of another stimulus package in Q1 is low. The consensus forecast for gold in 2021 is US$1,800 to US$1,900/oz.

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