(1:00) - Navigating Commodity Trades During Inflation (10:10) - Is Now A Good Time To Invest Into Precious Metals? (20:20) - Where Should Investors Be Looking To Gain Exposure To Commodities? (27:00) - Episode Roundup: MOS, FCX, SCCO, BHP, RIO, GLD, GDX, GDXJ, CLF, AA Podcast@Zacks.com
Welcome to Episode #307 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
This week, Zacks Stock Strategist and the editor of Zacks Commodity Innovators newsletter, Jeremy Mullin, joins the discussion to talk about the red-hot commodities sector.
It’s not just oil and natural gas which are at multi-year highs. Fertilizers like potash, metals like nickel and copper and agriculture products like wheat have been on a huge run too.
Is it too late for investors to dive into commodity stocks in 2022?
Or is there still further upside in some of these stocks?
Buy the Companies, Not the Commodities
Jeremy had plenty of advice for investors trying to navigate the commodities market including that he thinks investors should focus on the actual commodities companies and not the actual commodities themselves.
With commodity prices at multi-year highs, the companies have tremendous free cash flows. Energy companies, for instance, are paying dividends, special dividends and doing massive share buybacks with all of their free cash flow. You won’t get that from trying to trade the commodity itself.
5 Commodity Stocks for Your Short List 1. Mosaic ( MOS Quick Quote MOS - Free Report)
Mosaic produces potash and phosphate, two of the three top crop nutrients. The shares are up 66% year-to-date and have soared over 580% the last 2-years.
Yet Mosaic is still cheap, with a forward P/E of just 5.9. Earnings are expected to soar 125% year-over-year as fertilizer prices jump.
Mosaic pays a dividend, currently yielding just 0.7% but it announced it was increasing the dividend by the second quarter of 2022 and it will start a new $1 billion share buyback program.
Should those interested in the agriculture industry consider Mosaic?
2. Freeport-McMoran ( FCX Quick Quote FCX - Free Report)
Freeport-McMoran is one of the world’s largest publicly traded copper producers but it also mines gold and molybdenum.
With copper soaring, FCX shares have done the same, jumping 803% over the last 2 years. They have continued to outperform in 2022, adding another 19.5%.
FCX announced in Nov 2021 a $3 billion share repurchase program and a base and variable dividend that would be $0.60 per share in 2022.
Freeport-McMoran is still cheap, with a forward P/E of 13.
If you’re looking for a copper play, should FCX be on your list?
3. Southern Copper Corp. ( SCCO Quick Quote SCCO - Free Report)
Southern Copper is also one of the world’s largest copper producers. In 2021, net sales hit a record high of $10.9 billion, up 36.9% from 2020, thanks to higher product prices. Copper was up 51.1% year-over-year.
Southern Copper is using some of its free cash flow on dividends, with the base dividend currently yielding 5.2%.
Shares are up 24% year-to-date but are not as cheap as FCX, with a forward P/E of 19.
If you’re looking for a big base dividend, should you be considering Southern Copper?
4. BHP Group ( BHP Quick Quote BHP - Free Report)
BHP Group is an Australian commodity giant with business in oil, copper, coal, nickel and potash, among other commodities.
Like the others, BHP Group is seeing strong free cash flows. It currently pays a dividend yielding 10.2%.
Shares are up 17.6% year-to-date but BHP Group is still cheap, with a forward P/E of just 8.8.
Earnings are expected to be up another 20% this year.
If you want to own a company with exposure to several different commodities, should BHP Group be on your short list?
5. Rio Tinto Group ( RIO Quick Quote RIO - Free Report)
Rio Tinto is a mining giant headquartered in London. It mines iron ore, copper, aluminum and minerals globally.
In 2021, Rio Tinto saw record full year results with sales up 42% year-over-year.
It saw free-cash-flow of $18 billion, of which it paid out 79% to shareholders. Rio Tinto’s dividend is currently yielding 10.4%.
Shares are up 14.2% year-to-date but remain attractively valued with a forward P/E of just 7.1.
Should Rio Tinto be on your short list?
What Else Do You Need to Know about Commodity Stocks in 2022?
Tune into this week’s podcast to find out.