4 Commodity Stocks to Buy as Prices Prepare to Jump and Continue to Move
With US inflation hitting historic highs over the past few months, tech stocks have suffered badly, but commodity-related stocks have performed relatively well.
Since commodity prices generally rise roughly in line with headline inflation, commodity inventories are expected to remain elevated this year.
Additionally, most of these companies are profitable and do not borrow large sums of money, making them good assets in today’s market which has become jittery with rising interest rates.
Another important point is that the move away from fossil fuels and increased reliance on electricity has created increased demand for a number of metals, particularly copper and steel.
Yet despite this transition, oil and natural gas prices are rising due to a number of factors.
Among these causes are the relatively low production of the OPEC+ countries and the restrictions imposed on the American production of fossil fuels.
Other factors include the reduction in the use of coal and nuclear power in many countries and the strong rebound in demand for oil and natural gas due to the easing of the coronavirus pandemic.
Four great commodity stocks to buy are:
- Cleveland Cliffs (NYSE:FLC)
- Freeport-McMoran (NYSE:FCX)
- Chevron (NYSE:CLC)
- Energy Cheniere (NYSE:LNG)
Reserve shares to buy: Cleveland Cliffs (CLF)
The CLF stock has several positive catalysts. One of them is the fact that China, the world’s largest consumer of steel, is boosting its economy.
Another is the high probability of stock buybacks. CNBC Commentator Jim Lebenthal said on January 21 that the company was about to “massively buy back shares” because the company was reducing its debt. Earlier in January, Lebenthal identified Cleveland Cliffs as his top pick.
Other positive catalysts for Cleveland Cliffs are the upcoming alleviation of the chip shortage, which will rejuvenate global auto manufacturing and the electric vehicle revolution. As the electric vehicle boom takes hold, automakers will likely rush to make them and consumers will rush to buy them.
In addition, the proliferation of wind turbines and solar panels is also expected to boost overall steel demand.
Finally, the company should get a big boost from contract renegotiations and government infrastructure spending last year.
According to Market watchthe stock trades at a tiny price-to-earnings ratio of four.
Freeport McMoran (FCX)
Like Cleveland Cliffs, Freeport stands to benefit from the electric vehicle revolution. The company should also benefit from the electrification of transportation and upcoming improvements to the electrical grid in the United States.
Copper wiring is an essential component of electric vehicles as well as electric vehicle charging stations and demand is expected to continue to increase.
Various types of copper accounted for approximately 78% of Freeport’s revenue in the first quarter of 2021.
“Copper is the new oil,” said Jeff Curie, chief commodities analyst at Goldman Sachs, Looking for Alpha reported on January 17. “These conductive characteristics are needed in almost every major facet of the energy transition.”
FCX stock is trading at a low P/E ratio of 12.4.
Commodities Stock to Buy: Chevron (CVX)
The price of West Texas Intermediate Crude Oil broke through the $87 mark.
The price could rise significantly if tensions between Russia and the West increase further.
With pent-up demand for transportation likely to continue to rise as the pandemic subsides and spring and summer approach, oil prices are unlikely to drop significantly anytime soon.
Although Chevron had some business missteps and other difficulties in the fourth quarter, it still managed to generate a very impressive operating cash flow of $9.4 billion.
According to Looking for Alphathe latter figure should be “more than enough to support the company’s dividend, buyout and investment framework”.
Speaking of its dividend, despite the strong performance of CVX stock in 2021, the shares still offer a high dividend yield of 4.35%.
Chevron also benefits significantly from significant increases in natural gas prices in the United States and other countries.
Stocks of raw materials to buy: Cheniere (GNL)
Also benefiting from high natural gas prices around the world, Cheniere, whose facilities make it easy to export US natural gas.
The company benefits from natural gas prices of more than $25/MMBtu in Europe, compared to around $4 in the United States, as gas flows to its liquefied natural gas export terminal recently hit all-time highs .
Cheniere plans to complete or upgrade three new facilities this year, which will allow it to significantly increase its export volumes.
January 14, Goldman Sachs named LNG stock as one of its best ideas in the energy sector.
Barrons has also recently been bullish on stocks, signaling that gas buyers from other countries are looking to sign contracts to import liquid natural gas.
Due to this trend, Cheniere will generate high sales over the next few years, as the company “has entered into supply agreements with major Chinese companies in recent months, which should boost its revenue for years to come.” Barrons Noted.
“We expect the LNG contracting business to remain strong in 2022,” the publication said quoting Valery Chow, vice president of Mackenzie Woodas the saying goes.
As of the date of publication, Larry Ramer held a long position in LNG.
Larry has researched and written about US stocks for 14 years. He was employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks are Solar stocks, Roku, Plug Power, Ford and Snap. You can reach him on StockTwits at @larryramer. Larry started writing columns for InvestorPlace in 2015.