Federal Reserve Chair Jerome Powell was a bit of a party pooper last week when he told the world to expect “some pain” as the central bank attempts to tackle inflation. Stocks sold off sharply following his remarks at the annual economic symposium at Jackson Hole, Wyo., and have continued to struggle since. Astute investors, though, can use this as an opportunity to buy the best commodity stocks on the dip.
Powell’s remarks reflected the delicate balance the Fed must strike. Go too far with raising the benchmark interest rate and the economy could decelerate rapidly. But don’t push things far enough and inflation may crush American households.
However, core resources like food and energy never go out of style. While risks abound with any market segment this year, commodity stocks present an intriguing wager because of their relevance. Below are some of the best commodity stocks to consider.
|Wheaton Precious Metals
Humans must eat. This reality bolsters the case for Archer-Daniels-Midland (NYSE:ADM) being one of the best commodity stocks to buy. A multinational food processing and commodities trading corporation, ADM represents a fine investment during troubled times.
The company symbolizes resilience and reliability, boasting 49 consecutive years of dividend increases. With myriad organizations struggling amid an environment of rising borrowing costs, this track record provides much-needed reassurance.
Fundamentally, Archer-Daniels offers products and solutions throughout the food value chain. From ingredients to supplements to beverages, the company does it all. It also features an animal nutrition division, serving pets, poultry and the equine industries.
As you might imagine, investors placed a premium on ADM for its safe-haven profile. Shares are up 32% on a year-to-date basis. However, they are down about 3% since Powell spoke and sit 11% below their all-time high, made in April.
Agribusiness and food company Bunge (NYSE:BG) has gained additional relevance due to Russia’s invasion of Ukraine, which caused significant disruptions to supply chains for several resources, including food.
With Ukraine being one of the world’s top grain exporters, prices for food-related commodities like wheat jumped significantly. The situation is not likely to be resolved soon, with Ukraine recently launching its long-anticipated counteroffensive.
Wheat and specialty ingredients is one of Bunge’s core business units. As supplies appear poised for another crunch, investors may want to load up on BG stock. Shares are up about 8% for the year, but they have pulled back 5% in recent days and sit 23% below their 52-week high.
As analysts love to say these days, electric vehicles are the future. Naturally, such sentiment inspired investors to seek out public firms that might dominate the EV sector for years to come. However, predicting consumer sentiment is a tricky business. A hot EV company today could be filing for bankruptcy a few years from now.
Infrastructure-related companies like Albemarle (NYSE:ALB) take a lot of the guesswork out of the equation. Rather than trying to figure out which brands will be winners and losers, Albemarle provides what all EVs need: lithium for batteries. Therefore, ALB easily qualifies as one of the best commodity stocks to buy.
Although shares are up 15% so far in 2022, investors shouldn’t expect to get rich off ALB. Infrastructure plays just aren’t as exciting as individual consumer brands. However, with shares down 10% from their 52-high, which was made last week, investors may want to add ALB to their portfolio now at a discount.
Devon Energy (DVN)
As an independent oil and gas exploration and production company, Devon Energy (NYSE:DVN) has outperformed this year, up 66%. Russia’s invasion of Ukraine dealt a massive blow to global energy supplies and promoted the U.S. and other Western allies to impose sanctions. As a result, energy prices skyrocketed.
This backdrop benefited Devon, with the company enjoying a significant boost in profitability. For the second quarter, its operating margin came out to almost 46%, up from 12.4% in the year-ago quarter.
DVN doesn’t offer the greatest discount among the commodity stocks. Shares are up 66% year to date. However, in recent days, they have dipped 6% from their highs as investors weighed the impact of rising interest rates. And they are 11% below their all-time high, made in early June. So, this could still be an interesting opportunity for speculators.
Cheniere Energy (LNG)
With Europe, in particular, suffering from the energy disruption brought on by the Russia-Ukraine conflict, Cheniere Energy (NYSEAMERICAN:LNG) stepped up to the plate. Specializing in liquefied natural gas (or LNG, just like its ticker), Cheniere will likely be one of the most relevant commodity stocks to buy for years to come.
Cheniere delivered over 70% of its export cargoes to Europe during the first half of this year. The company exported 316 LNG cargoes, up from 272 in the first half of 2021.
Moving forward, Cheniere will likely play the role of Europe’s rescuer. Again, with Ukrainian forces launching a counteroffensive, the conflict probably won’t end anytime soon. Further, as the harsh winter season approaches for Europe, the region doesn’t have many viable alternatives.
LNG is up 59% so far this year, but shares have slipped 7% from their all-time high made a week ago, perhaps in reaction to the Fed’s commitment to hawkish monetary policy. This might be an overreaction, though, as Cheniere’s core product is too important to ignore.
Wheaton Precious Metals (WPM)
Wheaton Precious Metals (NYSE:WPM) is actually one of the more disappointing commodity stocks of 2022, with shares down 28% for the year and more than 10% in August. But, for risk-tolerant speculators, WPM may be worth a look.
Wheaton specializes in gold and silver mining, which theoretically should move higher during inflationary cycles. Fundamentally, during times of turmoil, precious metals tend to attract buyers looking for safe havens. Of course, buying physical gold and silver is cumbersome. Therefore, mining firms present a more practical option.
As a streaming company, Wheaton provides upfront financing to mining outfits in exchange for metals production at specified terms. Thus, the company facilitates far greater price predictability than is possible for direct mining firms.
Plus, with so much going on in the world, the precious metals sector might not be deflated indefinitely. Therefore, WPM is worth keeping on your radar.
Denison Mines (DNN)
These days, the political narrative as it relates to commodity stocks focuses on sustainability. Certainly, green energy solutions like wind and solar have improved dramatically. Unfortunately, no matter how much they improve, these sources will forever remain intermittent. The wind doesn’t blow forever and the sun eventually gives way to nightfall.
As a result, wind and solar feature the lowest capacity factor among all energy sources. On the other hand, nuclear energy features the highest capacity factor at 92.5%. In other words, every year, nuclear facilities operate at maximum power almost 93% of the time. Combined with its incredible energy density, nuclear invariably represents a critical cog in the resource supply chain.
If you really have the stomach for speculation, you might want to consider Denison Mines (NYSEAMERICAN:DNN). Specializing in uranium exploration and development, Denison might not garner much attention from the go-green crowd, but this penny stock could still offer enormous potential.
DNN is up around 3% YTD and sits 34% below its 52-week high.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.