These Commodity Stocks Are Ideal Buy-The-Dip Candidates
If you’re thinking that it might be too late to add commodity stocks to your investment plans, think again. With prices for potash, metals, wheat, and oil hitting multi-year highs and expected to remain elevated for the near term thanks to strong demand, many of the companies that produce these valuable resources are set to generate record profits.
There’s also plenty to like about how commodity stocks can potentially help you safeguard your portfolio against inflation, as several of these companies pay dividends and will continue to benefit if commodity prices go even higher.
With a serious geopolitical conflict resulting in sanctions on Russia and no end in sight for supply chain issues as well, it’s clear that there are plenty of reasons to consider commodity stocks at this time. That’s why we’ve put together the following list of 3 commodity stocks to buy on dips below. Let’s take a further look at what sets these companies apart.
1. Freeport-McMoRan
Metals and mining stocks like Freeport-McMoran Copper & Gold (NYSE:FCX) are especially attractive at the moment given how strong the demand for copper and gold is. It’s one of the largest publicly traded copper producers and a major producer of gold and Molybdenum, which means investors that are looking for exposure to a company with lucrative mining operations should be very interested in what Freeport-McMoRan has to offer.
Keep in mind that copper is a very important resource for end markets like consumer products, industrial machinery, construction, electrical applications, and more, which means the future is bright for any company that can provide this valuable metal.
It’s also worth noting that high-growth industries including electric vehicles and renewable energy are also heavily reliant on copper, which bodes well for this company’s growth prospects.
In 2021, Freeport McMoRan posted an adjusted EPS of $3.13, which represents year-over-year growth of over 479%. Q4 saw Freeport’s copper sales jump by 18% year-over-year, while the company’s gold sales jumped by 35%. These numbers help to confirm just how strong this company’s business can be in a market environment with elevated demand and soaring metal prices.
2. Valero Energy Corp
The energy sector has been on fire to begin the year, and with the way stocks like Valero Energy (NYSE:VLO) continue hitting new 52-week highs it’s clear that there’s still plenty of gas left in the tank for a sustained rally.
Valero is the world’s largest independent petroleum refiner and marketer, operating 14 refineries with a total capacity of 3.2 million barrels a day. The company also owns 14 ethanol plants that can produce 1.7 billion gallons of ethanol a year.
When it comes to oil stocks, it’s all about where their assets are located and how productive they are. This is a big reason why Valero has a strong competitive advantage, as its high-quality portfolio of refineries allows it to produce discounted domestic crude.
The company is also investing in sustainable energy sources like renewable diesel by entering a joint venture with Diamond Green Diesel. This is another strong reason to consider adding shares of Valero, as it’s a strategic move that could deliver great long-term returns.
Finally, a dividend yield of 4.1% makes Valero a truly exciting pick in the energy sector. Consider adding shares on dips in the coming sessions for exposure.
3. Cleveland Cliffs
Steel is the world’s second-largest commodity after crude oil, and we are currently seeing some strong moves higher from companies that offer exposure to this valuable metal. Cleveland Cliffs, for example, could be a great commodity stock to buy on dips given that it’s the largest flat-rolled steel company and the largest Iron ore pellet producer in North America. Steel prices are currently rocketing higher due to the fact that Russia and Ukraine are big exporters of pig iron, which is an important raw material used in steel production.
That's likely a big reason why Cleveland-Cliffs (NYSE:CLF) shares are hitting 9-year highs, which is certainly a sign of strength. With strong demand for steel products expected to continue driving profits higher as the world’s economy recovers from the impacts of the pandemic, it’s hard to argue against adding some exposure to the metal in your portfolio.
Keep in mind that this stock currently trades at a 5.39 P/E ratio, which is certainly an intriguing valuation in an expensive market. Keep an eye out for pullbacks on this rock-solid steel stock in the coming sessions.