Back to top

Image: Bigstock

How to Trade the Commodity Bull Market

Read MoreHide Full Article

The stock market saw a spectacular bull run after the pandemic lows hit in 2020. Tech stocks, meme stocks and anything involving cryptocurrency surged higher on the backs of Fed support and stimulus checks.

But over the last few months there has been a shift in what’s working. Instead of the sexy names that usually make the news, investors are piling into commodities.

Whether it’s stocks that deal in the commodities, or the underlying commodities themselves, investors have been aggressively buying since the Q4 of 2021.

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

Let’s explore those questions...

The Case for Commodities

1) Inflation

If you follow the markets, you know the staggering year over year inflation numbers that have posted lately. Economic stimulus measures were enacted to fight the COVID pandemic, but these policies have unfortunately led to the 7-9% inflation we have been seeing.

This is inflation that hasn’t been seen in 40 years!

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 daily basis give you exposure as well. Oil, gas, wheat, lumber and steel are just a few examples.

Prices in almost every commodity have gone up this year, so one might feel they are too late. However, the companies that deal in these commodities are just printing cash and their stocks likely have more room higher.

Think oil and gas names, fertilizers, gold miners and steel producers. These companies will see margins and profits increase as prices do. And with that, the stock price will head higher as well.

Continued . . .

------------------------------------------------------------------------------------------------------

Triple-Digit Potential from Overlooked Trades

Investors make big money on commodities – why not you? When the time was right, John Arnold raked in billions on natural gas. George Soros won a billion dollar bet against the British pound. Louis Bacon cashed in big on oil by predicting the Gulf War.

Today you don’t have to be a billionaire speculator to catch timely, skyrocketing moves.

Zacks unique investment strategy uses only easy-to-trade stocks and ETFs to target essential products like gold, gas, grains, currencies, energy, coffee, and more. With record-high inflation, supply chain disruptions, commodity prices are surging and are likely to keep climbing for months. We expect short-term jumps of +20% to +40% and long-term booms reaching +100% and beyond.

See Our Latest Buys Now >>

------------------------------------------------------------------------------------------------------

2) Russia and Ukraine

It’s hard to tell how long the Russia/Ukraine conflict will last and there a lot of moving parts to how it may end. What makes this war different than some 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. Crude oil and gasoline have both spiked 40% on the news, while wheat surged 60% higher after the invasion.

3) Supply Chains 

For over a year, the pandemic prevented a big percentage of the global population from living their normal life. In the early stages, global demand for commodities was turned off and prices tumbled.

Producers adjusted, by lowering their output as commodity prices dropped. But as global demand came back, commodity producers were slow to adjust, unsure if COVID wouldn’t come roaring back.

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. Demand destruction is yet to been seen with these higher prices, and while supply chains are improving, the relief on prices seems far away. 

How can an average investor play?

Most investors are not sophisticated enough to trade futures. However, there are products that will allow us to take advantage of the big moves in commodities.

1) Commodity ETPs- Exchange traded products like ETFs or ETNS allow investors to get broad exposure to the underlying commodity.

For energy there are popular products like UNG for natural gas which allows the investor to buy commodities like they would a stock. XLE is a popular option that seeks investment results correlated with stocks that are in the Energy Select Sector Index.

There are ETFs for grains like wheat, corn, and soybeans.

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. So far this year, this ETF is up over 30%.

2) Commodity Stocks- Instead of capping upside within an ETF like DBC or XLE, less risk-averse investors can target individual stocks. There have been moves in some commodity stocks that even tech investors are jealous of.

Example: So far in 2022, EOG Resources (EOG) has gained +56%, Mosaic Company (MOS) is up +75%, and Occidental Petroleum Corp. (OXY) has nearly doubled, climbing 93%.

3) Inverse ETPs- Commodity players can also profit from certain commodities going down thanks to inverse ETFs. While these products don’t target every commodity space, they allow energy and mining speculators the ability to play on the short side.  

The Trend is Your Friend 

Nothing goes straight up, so investors shouldn’t chase this volatile commodity group higher. Instead of blindly buying, investors should target pullbacks. Commodities can trade in a very technical manner, so buying moving averages and other indicators can be very fruitful.

Identifying Today’s Most Promising Trends

Commodities are a largely ignored asset class that are typically used as a small percentage of an investor’s portfolio. While 10-15% as a percentage is widely accepted, there is reason to believe that right now is the perfect time to increase exposure.  In fact, due to recent events, there is a case that investors should become directly involved in individual commodity plays.

An easy way to get started is to follow my Commodity Innovators portfolio. Our approach is simple: we identify strong trends in the commodity markets and target big profits with stocks and ETFs.

We aim for short-term moves that can generate double-digit gains within days – and we’ll ride longer-term trends that can produce triple-digit returns.

And the approach is working. We’ve recently given members a chance to close gains of +50.8%, +65.3%, even +109.6%

With current trading conditions, I believe the most explosive profit potential is yet to come.  Commodities also give you the benefit of diversifying your portfolio to hedge against downside risk in other market sectors.

When you look into Commodity Innovators today, you’re also invited to download The Great Inflation Threat: 5 Stocks to Preserve Wealth and Thrive. This urgent Special Report reveals five companies fueled by on-going inflation. Each could hand you significant gains in the coming months.

Don’t miss out on these powerful trends. The deadline to gain access to Commodity Innovators and claim The Great Inflation Threat free special report is Sunday, April 3rd.

Check out Commodity Innovators today >>

All the Best,

Jeremy Mullin
Zacks Strategist

Jeremy Mullin is a technical expert with 17 years' experience pinpointing the best times to buy and sell commodities. He is the editor of Zacks Commodity Innovators.

¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.



 

Published in