The headlines you read every day usually focus on the biggest and most popular stocks that everyone is watching. Companies like Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) are the most influential on our lives, so they get the most attention from the financial media.
While these stocks have been great for investors over the last ten years, that doesn’t mean that will continue to be the case.
In fact, the likelihood is that the next great places to invest are the areas that everyone is avoiding.
One asset class that has been kicked to the curb in 2020 is commodities. A lot of attention has been brought to the oil markets and the capitulation that was seen with negative crude oil prices in the May futures contract. However, crude is not alone. In fact, The Economist recently pointed out that commodity prices are where they were 160 years ago. That’s right, the prices of certain commodities are currently lined up with the Civil War era.
And that’s why I’m recommending that you invest in them today.
The Case for Commodities
1) Depressed Prices
The pandemic accelerated prices lower that were already depressed. The trade war with China caused selling the commodity space last year, so when COVID-19 came it was the nail in the coffin.
However, we are now at levels that have historically shown great opportunity in years past. Looking back to the financial crisis in 2008-09, we saw commodities take a similar hit to what we have seen the last few months. But when the recovery happened, we saw quick and violent moves higher as global demand came back online. Let’s look at some of the performers of 2010 and how investors cashed in big:
Palladium: + 96.60%
Silver: + 83.21%
Corn: +46.68%
Copper: +31.44%
Gold: +29.52%
Crude Oil: +15.5%
Continued . . .
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Notice to Zacks Members
Investors make big money on commodities – why not you? When the time was right, George Soros won a billion dollar bet against the British pound. John Arnold raked in billions on natural gas. Louis Bacon cashed in big on oil by predicting the Gulf War.
Today you don’t have to be a billionaire speculator in futures or options to catch timely, skyrocketing moves.
The newest Zacks investment strategy uses only easy-to-trade stocks and ETFs to target essential products like gold, gas, grains, currencies, energy, coffee, and more. As the coronavirus subsides, enormous pent-up demand will be unleashed. Then add a wave of momentum from new trade deals to the mix. We expect short-term jumps of +20% to +40% and long-term booms reaching +100%, +200%, and beyond.
See Our Latest Buys Now >>
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2) Normalization: The Return of Demand
The return of economies and global demand is exactly what commodities need to rebound. These natural resources are essential to prosperity, so prices will follow the progression of the COVID recovery.
The normalization in the post-COVID era will create numerous areas of opportunity, but given this asset class sees some of the wildest price fluctuations, it will see the greatest rewards. There is certainly a mean reversion coming, the question is when and how violent it will be.
We have already seen some big rebounds that show what may happen. In just a few weeks, crude oil has bounced over 100% twice! The June contract bottomed at $6.50 on April 21st and rallied to $18.26 two days later, a gain of 180%. After crude fell back to $10.07 on April 27th, it bounced to $20.48 on April 30th, another 103% gain.
While the full potential of these moves might be hard to catch, it shows the potential in commodities as well as the ETFs and stocks that move alongside their price swings.
3) The Fed – Gold, Silver, Palladium and Platinum
The average investor can forget the impact the Fed can have on the economics of commodities. When interest rate policies shift, the flow in and out of the dollar can force big price swings in the metal space. We have already seen gold shoot higher on the government and Fed response to COVID-19. And with gold approaching $2000, silver has moved higher in sympathy.
While both silver and gold are impacted, other metals that will be impacted when demand rebounds are available to savvy investors as well. The little-known metal Palladium had an almost 30% up move in January, before collapsing in March. With the Fed policy likely to continue into the foreseeable future, look for the metals to take the commodity lead.
Recent Performance
To hammer in the point that commodities are big movers, I made a list of some notable moves. Let’s take a look at some of the big performers over the last few years:
Palladium: Up 282% from August 2018 to January 2020
Lean Hogs: Up 76% from Feb 2019 to May 2019
Lumber: Up 55% from January 2017 to May 2018
Coffee: Up 45% from October 2019 to December 2019
Cocoa: Up 41% from September 2019 to January 2020
Silver: Up 38% from May 2019 to September 2019
Gold: Up 36 % from August 2018 to January 2020
Live Cattle: Up 36% from September 2019 to January 2020
Corn: Up 32% from May 2019 to June 2019
Sugar: Up 26% from September 2019 to January 2020
Those are some nice moves, but we can also profit from certain commodities going down thanks to inverse ETFs. As noted, crude oil fell apart in March. The leveraged inverse ETF SCO goes up as crude oil goes down and has benefited with a move of over 300% in since the start of 2020!
As you can see there is a lot of movement both up and down. Risk management is always important when investing, but in commodities it is paramount. With strict discipline, investors can limit downside risk, while maximizing the upside reward.
Speculation and Value
Commodities are all about speculation. Factors that move markets can include an increase in demand, a shortage of supply, economic growth or lack thereof. Moreover, the weather is a big catalyst for agriculture. While we might not be able to determine which way the wind blows, investors have tools that let them gain an edge. Technical analysis combined with analysis of individual markets can give an investor a good idea of where price may go.
In times of market shock, selling pressure can create tremendous long-term value.
You Can Take Advantage Now
The historic move lower in commodities is creating an opportunity to benefit from a reversion to the mean that will come when demand comes back. We will undoubtedly get big moves both up and down to capitalize on.
That’s why we established our newest portfolio, Zacks Commodity Innovators.
We aim to profit on the current opportunities in commodity markets. Our approach minimizes risk by avoiding the futures market, while keeping the same potential rewards. Using the Zacks Rank, we will have a plethora of ETFs and stocks to choose from that will allow us to capture this significant profit potential.
Breaking news and innovations with high-profit implications are popping up all around us. Three recent examples include:
- Significant oil discovery in offshore Suriname.
- Gold jumps on news of Iran crisis.
- Palladium triples over 3 years with improved catalytic converters.
Launched this past February, the portfolio has already closed quick gains like +39.4% in 11 days, +13.9% in 11 days, and +24.4% in 22 days. But even more importantly, we look to get in early on trends that could carry us for months and years to gains of +100%, +200%, and more.
Go ahead and check out the buys that are posted on our recommendation board. But I must emphasize that this is a restricted service and only open temporarily to public entry.
So don’t miss your chance to catch timely moves in an asset class that is primed to catch fire. The deadline for entry is Sunday, May 17.
Check out Zacks Commodity Innovators right away >>
Good Investing,
Jeremy
Jeremy Mullin is a technical expert with 15 years’ experience pinpointing the best times to buy and sell commodities. He is the editor of Zacks’ newest portfolio, Commodity Innovators.
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