Zacks Insights into the Commodity Bull Market

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

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Photo by Nathan Dumlao on Unsplash
Photo by Nathan Dumlao on Unsplash

The Case for Commodities

Let’s summarize the recent Zacks insights (as of July 23rd, 2022) into the current commodity bull market:

  • Inflation

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.

  • Russia vs Ukraine

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. 

  • Supply Chains

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.

How Can an Average Investor Play?

  • Commodity ETPs

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.

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. 

  • Commodity Stocks

Occidental Petroleum Corp. (OXY): 100%

Exxon Mobile (XOM): 44%

EOG Resources (EOG): +35%

Chevron (CVX): +30%

Mosaic Company (MOS): +28%

  • Inverse ETPs

One can profit from certain commodities going down thanks to inverse ETFs. For example, the Proshares ETF KOLD is an inverse ETF that reflects the 2X the daily movement of natural gas. 

Key Takeaways

  • The Trend Is Your Friend

Commodities can trade in a very technical manner, so buying moving averages and other indicators can be very fruitful.

  • Increase exposure beyond 10-15%
  • Become directly involved in individual commodity plays

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