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The Commodity Bull Market Will Continue

·8 min read
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The stock market saw a spectacular bull run after the pandemic lows hit in 2020. Tech stocks, meme stocks and anything involving cryptocurrency surged higher on the backs of Fed support and stimulus checks.

But over the last six months there has been a shift out of what was working. The hot stocks of the past decade have been sold aggressively, leading the S&P 500 to its worst first half in over 50 years.

Investors have instead avoided the names that usually make the news and piled into commodities.

Whether it’s stocks that deal in the commodities, or the underlying commodities themselves, they were being snapped up aggressively since Q4 2021.

But the possibility of a recession has increased, which has caused a big pullback in the names that were surging just a month ago.

Now investors are asking...

Is there more meat on the commodity bone and how does one buy?

The Case for Commodities

1) Inflation - If you follow the markets, you may be familiar with the staggering year over year inflation numbers that have posted lately. Economic stimulus measures were enacted to fight the COVID pandemic, but these policies have unfortunately led to the 7-9% inflation we have been seeing.

This is inflation that hasn’t been seen in 40 years!

The best place to be when inflation hits is hard assets. Your house is one way, but a lot of other goods you use on a daily basis give you exposure as well. Oil, gas, wheat, lumber and steel are just a few examples.

Prices in almost every commodity have gone up this year, so investors might feel they are too late. However, the companies that deal in these commodities are just printing cash and their stocks look attractive after the broad market sell off.

Think oil and gas names, fertilizers, gold miners and steel producers. These companies will see margins and profits increase as prices do. And with that, the stock price will head higher as well.

2) Russia and Ukraine – It’s hard to tell how long the Russia/Ukraine Conflict will last and there are a lot of moving parts as to how it may end. What makes this war different from other recent conflicts is that we have some of the biggest exporters of commodities essentially being cut off from global demand.

This creates massive supply constraints on a global scale that has sent prices higher. Some of the biggest exports for these two countries are wheat and energy. Crude oil and gasoline have both spiked higher on the news and held their gains. While wheat surged 60% higher after the invasion, it has since pulled back very close to pre-invasion levels.

3) Supply Chains - For two years, the pandemic prevented a big percentage of the global population from living their normal life. In the early stages, global demand for commodities was turned off and prices tumbled.

Producers adjusted, by lowering their output as commodity prices dropped. But as global demand came back, commodity producers were slow to adjust, unsure if COVID would come roaring back.

At the moment, most of the world is free from the hassle of COVID. However, shutdowns over the years have clogged supply chains. The demand for goods is creating an environment where consumers are driving prices higher for goods that aren’t immediately available. Demand destruction is yet to be seen with these higher prices and while supply chains are improving, the relief on prices seems far away.

Continued . . .

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How Can an Average Investor Play?

Most investors are not sophisticated enough to trade futures. However, there are products that will allow us to take advantage of the big moves in commodities.

1) Commodity ETPs - Exchange traded products like ETFs or ETNs allow investors to get broad exposure to the underlying commodity.

For energy, there are popular products like USO for crude, UGA for gasoline and UNG for natural gas that allow the investor to buy commodities like they would a stock. XLE is a popular option that seeks investment results correlated with stocks that are in the Energy Select Sector Index.

For grains, there are ETFs for wheat (WEAT), corn (CORN) and soybeans (SOYB).

In fact, you can find an ETF for almost any commodity out there. Investors can also go to ETFs that capture a basket of stocks instead of the commodity itself. DBC is the Invesco Commodity tracking fund that gives an investor diversification into the space. This ETF was up as much as 50% earlier this year and is still sitting on 30% gains for 2022.

2) Commodity Stocks - Instead of capping upside within an ETF like DBC or XLE, less risk-averse investors can target individual stocks. There have been moves in some commodity stocks that even tech investors are jealous of.

Let’s look at some names and what they have done so far in 2022:

• Occidental Petroleum Corp. (OXY): 100%
• ExxonMobil (XOM): 44%
• EOG Resources (EOG): +35%
• Chevron (CVX): +30%
• Mosaic Company (MOS): +28%

4) Inverse ETPs - Commodity players can also profit from certain commodities going down thanks to inverse ETFs. While these products don’t target every commodity space, they allow energy and mining speculators the ability to play on the short side.

For example, the Proshares ETF KOLD is an inverse ETF that reflects the 2X the daily movement of natural gas. The commodity recently experienced a big sell off, which helped the ETF move up over 140% in under a month!

The Trend Is Your Friend

Nothing goes straight up, so investors shouldn’t chase this volatile commodity group higher. Instead of blindly buying, investors should target pullbacks like the one we are seeing now. Commodities can trade in a very technical manner, so buying moving averages and other indicators can be very fruitful.

When Should You Invest in Commodities?

This largely ignored asset class is typically used as a small percentage of an investor’s portfolio. While 10-15% as a percentage is widely accepted, there is reason to believe that right now is the perfect time to increase exposure.  In fact, due to recent events, there is a case that investors should become directly involved in individual commodity plays.

The Best, Easiest Way to Get Started

The commodity markets are not for the faint of heart, but they can be extremely rewarding. Now, more than ever, is perhaps the greatest time in a decade to find exposure to the ups and downs of this volatile market.

Additionally, while the prices of these commodities might see a lot of volatility, the stocks that benefit from the price of those commodities look to see big profits for years to come.

Today, I invite you to follow my Commodity Innovators portfolio.

I’m stalking the strongest trends to find commodity stocks with the most promise. We will minimize our risk without being exposed to the futures market, while keeping the same potential rewards.

Using the Zacks Rank, I have a plethora of ETFs and stocks to choose from that will allow us to capture this profit potential created within the commodity markets.

Over the past few months, the Commodity Innovators portfolio already handed members recent gains like +109.6%, +50.8%, +65.3%, and even one for +93.1% in just 17 days.¹

And I just posted two brand-new trades on Thursday that could rival or surpass the above performances for early investors. You can still be one of the first to see them.

Overall, research indicates that current market trends are likely to continue producing big opportunities at least through the end of 2022.

Bonus: To maximize your profit potential in today's inflationary market you can also access our Special Report, Oil Market on Fire: 4 Stocks with Smoking Upside.  It reveals Zacks’ top tickers in what could become the hottest commodity of all.

I urge you to take advantage of this right away. The deadline to gain access to Commodity Innovators and claim our Oil Market on Fire report is midnight Sunday, July 24.

Access to these picks must be limited so there will be no extensions to the deadline.

Check out Commodity Innovators  and Oil Stocks on Fire today >>

All the Best,

Jeremy Mullin
Zacks Strategist

Jeremy Mullin is a technical expert with 17 years' experience pinpointing the best times to buy and sell commodities. He is the editor of Zacks Commodity Innovators.

¹ The results listed above are not (or may not be) representative of the performance of all strategies developed by Zacks Investment Research.




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