In this article, we discuss the 11 best commodity stocks to invest in.
Macroeconomic concerns have been clouding the commodities market in the past few days after the Federal Reserve in the United States hiked the interest rate by 75 basis points yet again in an effort to tame inflation. The increase brought the rates to their highest level since 2008, which was the last time that the country was in a recession. The benchmark indexes in the US tumbled as a result, with the S&P 500, the NASDAQ Composite, and the Dow Jones Industrial Average down over 2%, 2.5%, and 1.6% respectively in the past five days as of September 22.
Prominent commodity stocks like Newmont Corporation (NYSE:NEM), Barrick Gold Corporation (NYSE:GOLD), and Wheaton Precious Metals Corp. (NYSE:WPM) act as safe havens amid the rate hikes that have shocked the commodities market, which had already been reeling from the pressures of the Russian war in Ukraine and the turmoil in the global energy sector. The rise in energy prices is the highest seen since the 1973 crisis.
A World Bank report on the near-term future of the commodities sector reveals that the altering global patterns of trade, production, and consumption will keep commodity prices at historically high levels through the end of 2024. Indermit Gill, the Vice President for Equitable Growth, Finance, and Institutions at the World Bank, has said that the soaring commodity prices have started to raise the spectre of stagflation. Gill urged policymakers to take every opportunity to increase economic growth at home and avoid actions that will bring harm to the global economy.
Our Methodology
The companies that operate in the commodities sector were selected for the list. In order to provide readers with some context for their investment choices, the business fundamentals and analyst ratings for the stocks are also discussed. Data from around 900 elite hedge funds tracked by Insider Monkey in the second quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.
Photo by Francisco Fernandes on Unsplash
Best Commodity Stocks To Invest In
11. SunCoke Energy, Inc. (NYSE:SXC)
Number of Hedge Fund Holders: 13
SunCoke Energy, Inc. (NYSE:SXC) operates as an independent producer of coke in the Americas and Brazil. The firm features on the list of best commodity stocks to invest in. The company is slowly building a dividend profile, that makes the shares more attractive. On August 2, the company declared a quarterly dividend of $0.08 per share, an increase of over 33% compared to the previous dividend of $0.06 per share. Two years of consistent payments in the dividend space will bring the firm at par with the sector median.
On August 2, SunCoke Energy, Inc. posted earnings for the second quarter of 2022, reporting earnings per share of $0.21, missing market estimates by $0.02. The revenue over the period was $501 million, up 37% year-on-year.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Renaissance Technologies is a leading shareholder in SunCoke Energy, Inc., with 3 million shares worth more than $20.6 million.
Just like Newmont Corporation, Barrick Gold Corporation, and Wheaton Precious Metals Corp., SunCoke Energy, Inc. is one of the best commodity stocks to invest in.
In its Q4 2021 investor letter, Steel City Capital, an asset management firm, highlighted a few stocks and SunCoke Energy, Inc. was one of them. Here is what the fund said:
“SunCoke Energy, Inc. owns five cokemaking facilities in the U.S. capable of producing 4.2 million tons per annum (mtpa) of blast furnace coke. Coke is a key raw material used in the process of producing steel via the blast furnace method. In addition to its cokemaking operations, SXC owns a collection of marine terminals, the largest of which is the Convent Marine Terminal (CMT) in Louisiana. CMT has the capacity to transload 15 mtpa of coal and other industrial materials. In 2020, CMT accounted for 55% of U.S. thermal coal exports from the U.S. Gulf Coast and 15% of total U.S. thermal coal exports.
While the broader steelmaking industry recently benefited from all-time high steel prices, resulting in record production levels, growing cash flow, and improving balance sheets, SXC has continued to trade with a free cash flow yield in excess of 20%, reflecting considerable concern about the company’s prospects. I believe there is a broad misunderstanding of the SXC story driven in part by shallow analysis of the company’s business model and cash flow prospects. I believe fair market value ranges from $14-$17, representing an upside of 84-122% from current levels. What’s more, SXC represents an attractive takeout target for industry-consolidator Cleveland Cliffs (CLF), which at a minimum provides downside protection, but also offers a potential catalyst for value realization in the future.(…read more)
10. Southern Copper Corporation (NYSE:SCCO)
Number of Hedge Fund Holders: 17
Southern Copper Corporation (NYSE:SCCO) engages in mining, exploring, smelting, and refining copper and other minerals. The company is one of the most prominent commodity stocks to invest in. It was founded in 1952 and is based in Arizona. The interests it has in copper include mining, milling, and flotation of copper ore to produce copper and molybdenum concentrates, as well as smelting of copper concentrates. Copper demand is surging as EVs gain popularity across the world.
On September 16, Morgan Stanley analyst Carlos De Alba upgraded Southern Copper Corporation stock to Equal Weight from Underweight and raised the price target to $55 from $51, noting that value was beginning to show within American mining stocks.
Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Southern Copper Corporation, with 3.6 million shares worth more than $178 million.
9. BHP Group Limited (NYSE:BHP)
Number of Hedge Fund Holders: 19
BHP Group Ltd. (NYSE:BHP) operates as a resources company in Australia, Europe, China, Japan, India, South Korea, the rest of Asia, North America, South America, and internationally. The firm is among the best commodity stocks to invest in. On September 19, news publication Bloomberg reported that BHP Group Ltd. was considering a bid of nearly $6.7 billion for the purchase of Australian mining firm OZ Minerals. The offer is more than $1 billion higher from the previously reported figure of $5.6 billion.
On August 17, investment advisory Credit Suisse maintained a Neutral rating on BHP Group Ltd. stock and raised the price target to GBP 2,300 from GBP 2,200. Analyst Danielle Chigumira issued the ratings update.
At the end of the second quarter of 2022, 19 hedge funds in the database of Insider Monkey held stakes worth $1.3 billion in BHP Group Ltd., same as 19 in the preceding quarter worth $2.2 billion.
In its Q1 2021 investor letter, Harding Loevner, an asset management firm, highlighted a few stocks and BHP Group Ltd. was one of them. Here is what the fund said:
“Our purchase of Australian mining company BHP Group Ltd. is an example of a quality company at a moderate valuation that should deliver attractive long-term returns. We believe the market has undervalued its enduring competitive advantage due to its low cost iron and copper mining operations which has allowed the company to deliver consistent profits and cash flows across the inevitable ups and downs of the global metals cycle. While the variability of commodity prices prevents BHP from scoring in the top ranks of measured quality, we are willing to bear some of that uncertainty in return for a more attractive valuation given the company’s strong business fundamentals.”
8. Rio Tinto Group (NYSE:RIO)
Number of Hedge Fund Holders: 24
Rio Tinto Group (NYSE:RIO) engages in exploring, mining, and processing mineral resources worldwide. The firm is among the best commodity stocks to invest in. On September 22, the company announced that it had signed an MoU with the Shougang Group, a Chinese steel producer, to research, design, and implement low-carbon solutions for the steel value chain. The focus areas of the deal include low-carbon sintering technology, blast furnace and basic oxygen furnace optimization, and carbon capture and utilization.
On August 16, investment advisory Morgan Stanley maintained an Equal Weight rating on Rio Tinto Group stock and lowered the price target to GBP 5,900 from GBP 5,990. Analyst Alain Gabriel issued the ratings update.
At the end of the second quarter of 2022, 24 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in Rio Tinto Group, compared to 26 the preceding quarter worth $2.5 billion.
7. Vale S.A. (NYSE:VALE)
Number of Hedge Fund Holders: 27
Vale S.A. (NYSE:VALE) produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking. It is one of the top commodity stocks to invest in. The firm posted earnings for the second quarter of 2022 on July 29, reporting earnings per share of $1.32, beating market estimates by $0.52.
On September 12, RBC Capital analyst Tyler Broda upgraded Vale S.A. stock to Outperform from Sector Perform and raised the price target to $16 from $15, noting the stock had better valuation based on underperformance against peers in the past few months.
At the end of the second quarter of 2022, 27 hedge funds in the database of Insider Monkey held stakes worth $1.8 billion in Vale S.A., compared to 27 in the previous quarter worth $2.4 billion.
6. Cleveland-Cliffs Inc. (NYSE:CLF)
Number of Hedge Fund Holders: 29
Cleveland-Cliffs Inc. (NYSE:CLF) operates as a flat-rolled steel producer in North America. It is one of the elite commodity stocks to invest in. On August 24, the company announced that it would be raising the current spot market base prices for all carbon steel hot rolled, cold rolled, and coated steel products by a minimum of $75/ton. The firm said the higher prices were effective immediately with new orders in North America. The shares have rallied on the back of the announcement and increasing steel demand for EV production.
On September 21, Credit Suisse analyst Curt Woodworth maintained an Outperform rating on Cleveland-Cliffs Inc. stock and lowered the price target to $25 from $30, noting the compression multiples as one of the reasons behind the target decrease.
At the end of the second quarter of 2022, 29 hedge funds in the database of Insider Monkey held stakes worth $451 million in Cleveland-Cliffs Inc., compared to 48 in the preceding quarter worth $1.6 billion.
In addition to Newmont Corporation, Barrick Gold Corporation, and Wheaton Precious Metals Corp., Cleveland-Cliffs Inc. is one of the best commodity stocks to invest in.
5. LyondellBasell Industries N.V. (NYSE:LYB)
Number of Hedge Fund Holders: 37
LyondellBasell Industries N.V. (NYSE:LYB) operates as a chemical company in the United States, Germany, Mexico, Italy, Poland, France, Japan, China, the Netherlands, and internationally. It is one of the elite commodity stocks to invest in. The firm posted earnings for the second quarter of 2022 on July 29, reporting earnings per share of $5.19, beating market estimates by $0.49. The revenue over the period was $14.8 billion, up more than 28% compared to the revenue in the same period last year.
On September 19, UBS analyst Joshua Spector maintained a Neutral rating on LyondellBasell Industries N.V. stock and lowered the price target to $83 from $96, noting there was investor caution in the chemicals space after the recent profit warnings.
Among the hedge funds being tracked by Insider Monkey, California-based investment firm Eagle Capital Management is a leading shareholder in LyondellBasell Industries N.V., with 4 million shares worth more than $358 million.
In its Q3 2021 investor letter, Miller Howard Investments, an asset management firm, highlighted a few stocks and LyondellBasell Industries N.V. was one of them. Here is what the fund said:
“We initiated a position in LyondellBasell Industries N.V.. Chemical markets are currently robust given the combination of 2020 plant shutdowns and strongly recovering demand. Despite the tailwinds, Lyondell trades at a low valuation and yields just under 5%.”
4. Alcoa Corporation (NYSE:AA)
Number of Hedge Fund Holders: 39
Alcoa Corporation (NYSE:AA) produces and sells bauxite, alumina, and aluminium products. It is one of the top commodity stocks to invest in. On August 30, the company announced that it would be cutting one third of the production capacity at the Lista smelter in Norway because of high energy costs for the site. The Lista smelter has three potlines with an annual nameplate capacity of 94,000 metric tons/year. The Lista site is currently exposed to spot energy pricing, which has increased to more than $600/MWh.
On September 21, Credit Suisse analyst Curt Woodworth maintained a Neutral rating on Alcoa Corporation stock and lowered the price target to $50 from $63, noting that lower commodity prices and operational and energy cost pressures were weighing on the stock.
At the end of the second quarter of 2022, 39 hedge funds in the database of Insider Monkey held stakes worth $1.2 billion in Alcoa Corporation, compared to 50 in the preceding quarter worth $2.8 billion.
3. Barrick Gold Corporation (NYSE:GOLD)
Number of Hedge Fund Holders: 40
Barrick Gold Corporation engages in the exploration, mine development, production, and sale of gold and copper properties. The firm is among the best commodity stocks to invest in. On September 2, the company announced that it would be selling a portfolio of royalties to Maverix Metals for up to $60 million. The portfolio consists of 22 royalties on the production of minerals from mines in North America, South America, Australia, and Africa. The transaction is expected to close at the end of the third quarter.
On July 19, Barclays analyst Matthew Murphy maintained an Overweight rating on Barrick Gold Corporation stock and lowered the price target to $25 from $28, noting that copper stocks faced headwinds on macro and fundamental levels.
Among the hedge funds being tracked by Insider Monkey, New York-based firm First Eagle Investment Management is a leading shareholder in Barrick Gold Corporation, with 26.6 million shares worth more than $471 million.
In its Q1 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Barrick Gold Corporation was one of them. Here is what the fund said:
“Also within the structural bucket, we have selectively added to our commodity exposure with the purchase of Barrick Gold. Canadian mining company Barrick Gold is a play on operating improvements. The company has aggressively delivered its balance sheet and reduced capex spending to a lower level more permanently, directing its healthy free cash flow to dividends and buybacks.”
2. Newmont Corporation (NYSE:NEM)
Number of Hedge Fund Holders: 56
Newmont Corporation (NYSE:NEW) is one of the most prominent commodity stocks to invest in. The firm posted earnings for the second quarter of 2022 on July 25, reporting earnings per share of $0.46, missing market estimates by $0.15. The revenue over the period was $3 billion, flat when compared to the revenue over the same period last year but beating analyst expectations by $20 million. The firm said it expected gold production of 6 million ounces in the 2022 fiscal year.
On September 16, Barclays analyst Matthew Murphy maintained an Equal Weight rating on Newmont Corporation stock and lowered the price target to $57 from $58, noting the firm had delayed the construction decision timeline for the Yanacocha Sulfides project.
Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm GQG Partners is a leading shareholder in Newmont Corporation, with 34.8 million shares worth more than $2 billion.
In its Q2 2022 investor letter, First Eagle Investments, an asset management firm, highlighted a few stocks and Newmont Corporation was one of them. Here is what the fund said:
“Shares of Colorado-based Newmont Corporation, the largest gold miner in the world, experienced weakness in the quarter as falling gold bullion prices and cost inflation hurt miners in general. More idiosyncratically, the company reported slightly disappointing earnings and production results for its most recent quarter due to pandemic-related disruptions, ongoing supply-chain constraints, and labor shortages.
It also warned that operating costs for 2022 were likely to come in at the upper end of previous guidance. We remain constructive on the stock, which offers steady production anchored in good jurisdictions, a good pipeline of organic projects, a strong balance sheet, and proven management.”
1. Freeport-McMoRan Inc. (NYSE:FCX)
Number of Hedge Fund Holders: 56
Freeport-McMoRan Inc. (NYSE:FCX) engages in the mining of mineral properties in North America, South America, and Indonesia. The company is slowly building a dividend profile. On September 21, Freeport-McMoRan Inc. declared a quarterly dividend of $0.15 per share, in line with previous. The forward yield was 2.02%. The dividend is payable to shareholders by mid-October. The firm is based in Arizona and was founded in 1987.
On July 22, RBC Capital analyst Sam Crittenden maintained a Sector Perform rating on Freeport-McMoRan Inc. stock and lowered the price target to $35 from $46, noting that the firm had reported another strong quarter.
At the end of the second quarter of 2022, 56 hedge funds in the database of Insider Monkey held stakes worth $2.4 billion in Freeport-McMoRan Inc., compared to 68 the preceding quarter worth $4.1 billion.
In its Q1 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Freeport-McMoRan Inc. was one of them. Here is what the fund said:
“Supply chains eased for some goods, but remained challenged for many commodities including energy, agriculture, and fertilizer due to war and general scarcity, and also in many consumer products as semiconductors remained in short supply. Copper and gold producer Freeport- McMoRan rose as copper prices remained strong due to supply shortages and growing use in renewable energy systems and electric vehicles.”
You can also take a peek at 10 Russell 2000 Basic Materials Dividend Stocks to Buy and 10 Utilities Stocks with Over 3% Dividend Yield.
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This article is originally published at Insider Monkey.
