In this article we will take a look at the 10 best commodity stocks to buy now.
Commodity prices are booming as the world slowly begins to come back to normal following mass rollouts of COVID-19 vaccines. S&P GSCI commodities index is up 15% year to date, and 83.38% over the last 12 months. In February, copper prices hit their highest level in almost a decade.
In December 2020, Martin Roberge, managing director of North American portfolio strategy at Canaccord Genuity, said in an interview that commodities will beat stocks and bonds as an asset class. Here’s what the analyst said:
“Commodities will beat, as an asset class will beat stocks, and bonds. If investors follow the following themes, non-US over US stocks, small over large, cyclical stocks over defensive stocks, we believe that they will do probably more than the 5-7% returns that we expect for the large cap indexes.
If you look at the consumption of goods, it has been so strong in Q2 and Q3 this year, that we are going to go through a major inventory restocking cycle around the world. Obviously, this is positive for commodities.
For cyclicality or the commodity stocks, we’ve got some here in Canada but those are kind of small mid-cap stocks so you have to go to probably elsewhere, in emerging markets and some in Australia, and some in the US as well, especially when it comes to energy. I think you need to diversify across regions when it comes to the cyclicality of your portfolio.”
Similarly, Goldman Sachs’ Head of Global Commodity Research, Jeff Currie said in an interview with CNBC non-energy commodities are ripe for further bull runs.
“Coffee, cocoa, and iron ore are the only commodities that are not in a deficit right now, and that’s really rare. Given where we are in the current cycle. We were in a trough of a recession 6 months ago, yet we have every single market in a deficit but the exception of those three that I just rattled off, which underscores the structural under investment in supply that we have. Demand across most of these markets is tepid even in oil, which underscores, supply is really the driving source here.
When you look at the non-energy commodities, you want to be among them right now today, particularly the investment goods like copper and the rest of them because they have very strong demand that’s being driven by a lot of these policies directed at infrastructure projects. In contrast, when you look at oil, the demand is still weak, which means it will probably trade sideways until you whittle down that inventory overhang. Right now there’s about 800 million barrels of excess inventory that needs to be worked through. Sometime like the second quarter of next year which is when you can tactically start to see real upside in oil. Our target going into the second half of next year is $65 a barrel, which is really far from here. I do want to emphasize, don’t get too excited yet because you still have that 800 million barrels that you need to work through.”
While choosing stocks to invest in, you should perform detailed research amid the increasing volatility in the financial markets, which is making it harder for even the smart money to sustain profits. The hedge fund industry that once used to post sterling gains is also feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context and industry outlook in mind, let’s start our list of 10 best commodity stocks to buy now.
10. Denison Mines Corp. (NYSE: DNN)
Number of Hedge Fund Holders: 6
Canada-based Denison ranks 10th in the list of 10 best commodity stocks to buy now. The company is primarily involved in uranium exploration with main assets in northern Saskatchewan including McClean Lake mine and the Midwest Uranium Project. The stock jumped earlier in March after reports that the stock would be added to Canada’s benchmark S&P/TSX Composite index beginning March 22.
With a $6.2 million stake in DNN, Falcon Edge Capital owns 9.6 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 6 hedge funds held stakes in DNN as of the end of the fourth quarter.
9. Energy Fuels Inc. (NYSE: UUUU)
Number of Hedge Fund Holders: 8
Energy Fuels is a major uranium producer. The company’s FY’20 GAAP EPS of -$0.23 beat the Street forecasts by $0.02. Last year, the company said it was foraying into the rare earth element business. The company owns uranium-bearing monazite sands at its White Mesa Mill. The stock has gained an impressive 350% over the last 12 months.
A total of 8 hedge funds tracked by Insider Monkey held stakes in Energy Fuels at the end of 2020.
8. Sociedad Química y Minera de Chile S.A. (NYSE: SQM)
Number of Hedge Fund Holders: 14
SQM is one of the biggest producers of lithium, an in-demand commodity amid the rise of EVs and energy storage solutions worldwide. The company has production facilities in the Atacama Desert, Chile. The stock has gained 130% over the last 12 months. The company recently said it plans to announce a project that would double its lithium hydroxide production — to 60K per year tons from 30K. The company posted upbeat Q4 results as its lithium sales volumes jumped 50% as compared to the previous quarter.
As of the end of the fourth quarter of 2020, Citadel Investment Group owns 1.1 million shares of SQM worth $55.3 million. SQM accounts for 0.01% of Citadel’s total portfolio.
7. Coeur Mining, Inc. (NYSE: CDE)
Number of Hedge Fund Holders: 17
Illinois-based Coeur Mining ranks 7th in our list of 10 best commodity stocks to buy now. The company mines and explores key commodities including gold, silver, lead and zinc in the U.S., Canada and Mexico. The company reported upbeat reserves at the end of 2020. Gold reserves of Coeur stand at about 3.12 million ounces, up 22% on a year-over-year basis, while silver reserves jumped 42% to about 260 million ounces. The stock is up 173% over the last 12 months.
The company is also getting the attention of the smart money, as 17 hedge funds tracked by Insider Monkey reported owning stakes in the company at the end of the fourth quarter, up from 15 funds a quarter earlier.
6. SSR Mining Inc. (NASDAQ: SSRM)
Number of Hedge Fund Holders: 18
SSR Mining ranks 6th in the list of 10 best commodity stocks to buy now. The Canadian company explores gold, silver, zinc and tin, with the ownership of the largest silver mine in Argentina. The company saw better results in the fourth quarter amid higher gold and silver prices and lower costs. The stock is up 22% over the last 12 months.
Our database shows that 18 hedge funds held stakes in SSRM as of the end of the fourth quarter.
5. Southern Copper Corporation (NYSE: SCCO)
Number of Hedge Fund Holders: 23
Arizona-based Southern Copper mines key commodities including copper molybdenum, silver, and zinc, silver and gold, with assets mostly in South America. According to recent reports by the La República newspaper, the company is planning to spend a whopping $8 billion in various mining projects, including some in Tia Maria mine.
As of the end of the fourth quarter, there were 23 hedge funds in Insider Monkey’s database that held stakes in SCCO, compared to 27 funds in the third quarter. Ken Fisher’s Fisher Asset Management, with 4.2 million shares of SCCO, is the biggest stakeholder in the company.
4. Cameco Corporation (NYSE: CCJ)
Number of Hedge Fund Holders: 25
Cameco ranks 4th in the list of 10 best commodity stocks to buy now. The stock has gained 110% over the last 12 months. In the fourth quarter, the company posted non-GAAP EPS of $0.12, beating the Street forecasts by $0.16. Revenue in the quarter fell 37% to $550 million but was still above the Street’s consensus by $240.98 million
According to our database, the number of CCJ’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 25 hedge funds that hold a position in Cameco Corp. compared to 20 funds in the third quarter. The biggest stakeholder of the company is David Iben’s Kopernik Global Investors, with 11 million shares, worth $147.6 million.
3. Rio Tinto Group (NYSE: RIO)
Number of Hedge Fund Holders: 26
Anglo-Australian Rio Tinto is one of the biggest commodities miner in the world, dealing in iron ore, copper, diamonds, gold and uranium. Rio Tinto is also a great investment option for income investors. In February 2021, the company posted strong quarterly results, driven by an upbeat demand of iron ore from China. The company also announced that it would pay a final dividend of $5 billion and a special dividend of $1.5 billion. The total shareholder payout for 2020 was $9 billion, the biggest in the company’s history.
A total of 26 hedge funds tracked by Insider Monkey were bullish RIO at the end of the fourth quarter, up from 23 funds a quarter earlier.
2. Barrick Gold Corporation (NYSE: GOLD)
Number of Hedge Fund Holders: 53
Barrick Gold ranks 2nd in the list of 10 best commodity stocks to buy now. The gold miner has assets in Carlin, Cortez, Turquoise Ridge, Long Canyon, Phoenix, Pueblo Viejo, Loulo-Gounkoto, Kibali, Hemlo and Porgera. The company is also a major producer of copper. Bank of America recently gave bullish comments for Barrick Gold along with other gold stocks. The firm likes Barrick Gold because of the company’s policies of giving a priority to shareholder returns. BofA has a Buy rating for GOLD stock.
First Eagle Investment Management currently holds 26.8 million shares of Barrick Gold Corp. that amounts $610.8 million. GOLD occupies 1.72% of First Eagle’s total portfolio.
GoodHaven Capital Management, in their Q4 2020 investor letter, mentioned Barrick Gold Corporation (NYSE: GOLD) and emphasized their views on the company. Here is what GoodHaven Capital Management has to say about Barrick Gold Corporation in their Q4 2020 investor letter:
“Barrick’s recent results have been consistent with our expectations. Barrick has begun inching up the dividend as planned, which should continue increasing absent them finding a large acquisition (they want more copper assets) or a materially lower price of gold. We’d also expect periodic special dividends during stronger gold price environments. At current gold prices we estimate normalized free cash flow at Barrick of over $1.60/share. The company is now about net-debt free. We see plenty of upside and absent a collapse in gold not too much downside. Missing from much of the public discussions about gold, but potentially interesting, is the supply/demand backdrop. As the Wall Street Journal (8/16/20) recently said “gold is amongst the rarest metals in the earth’s crust and much of the easier to get to ore has already been mined. What is left is harder to find and more expensive to extract…” According to the World Platinum Council, it was forecasted that there will be a supply and demand imbalance of 1.2 million ounces globally. The potential macro tailwinds that could add value to an alternate currency like gold including currency concerns, excessive debt and continuing negative real interest rates are still out there. While the shares performed well for the year they were weak in the second half and now stand more attractively priced.”
1. Freeport-McMoRan Inc. (NYSE: FCX)
Number of Hedge Fund Holders: 61
Freeport McMoran is one of the biggest miners in the U.S., with assets in North America, South America and Indonesia. The company explores key and important commodities like copper, gold, molybdenum, silver, as well as oil and gas. The company has reinstated dividend for 2021. The stock has a dividend yield of 0.93%. The company has benefitted from the rise in copper prices in 2020. For 2021, it expects EBITDA at $11 billion assuming the current copper prices.
According to our database, the number of FCX’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 61 hedge funds that hold a position in FCX compared to 57 funds in the third quarter. The biggest stakeholder of the company is Fisher Asset Management, with 42.9 million shares, worth $1.1 billion.
You can also take a peek at 10 Best Battery Stocks to Buy Now and 10 Best Oil and Energy Stocks To Buy Now.
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Disclosure: None. 10 Best Commodity Stocks To Buy Now is originally published on Insider Monkey.
