10 Commodities Investments to Rev Up Your Portfolio
You may not have much of a taste for commodities right now, and who could blame you? At a time when Wall Street has seen healthy run-ups, many commodities stocks have taken a beating. But as equities experts put it, you can't keep a good stock down, especially when it trades in an area where there's a proven need or demand that's bound to increase.
"The [Thomson Reuters CoreCommodity CRB Index] has been in a bear market since its peak in 2011, making commodities seem like a questionable investment," says John O'Donnell, chief knowledge officer of Online Trading Academy, based in Irvine, California. "But just like it's proven contrarian wisdom that the best time to buy is when there's 'blood in the street,' courageous and patient investors now have the opportunity to buy when there's gold in the street."
So why not mine value from precious metals or top off your portfolio tank with gas funds? Here are 10 commodities offerings with promising prospects for 2015 and beyond.
1. Silver Wheaton Corporation (symbol: SLW). Currently, Silver Wheaton trades for about $20, the same price it fetched in December 2013. It's a royalty metals company, meaning it grows by purchasing contracts from proven precious metals miners by advancing funds versus production. "Silver is a modern medal essential to the growing digital age," O'Donnell says. But Silver Wheaton could also profit in a world where currencies are devalued due to inflation while "silver is a proven store of value," he says.
2. Continental Resources (CLR). Continental Resources Inc. has a large, active stake in North Dakota's Bakken Shale oil formation. "Right now, you might stay away from Continental because oil prices are so low, but people are much more bearish than they should be," says Navaneel Ray, portfolio manager of TIAA-CREF Global Natural Resources Fund. "While we're cautious in the sector, we think long term, the low oil prices we're seeing are not sustainable, and we'll see them go to higher levels."
3. Energy Select Sector SPDR Fund (XLE). Part of the larger SPDR Trust, this fund combines consistent dividends with a low price (under $80 in March, as opposed to $100 in June). It also has significant holdings in oil. "XLE is a great way to play the space," says JJ Feldman, investment manager at Los Angeles-based Miracle Mile Advisors. "It's heavily weighted toward Exxon and Chevron. These two companies comprise 29 percent of the fund."
4. AGL Resources Inc. (GAS). AGL Resources is an Atlanta-based, mid-cap company and the nation's largest natural gas-only distribution company. It serves more than 4 million customers in seven states, at a time when increased natural gas consumption is a distinct possibility in 2015, says Ryan Kelley, co-portfolio manager of the Hennessy Gas Utility Fund and based in Novato, California. "We believe GAS would be a logical beneficiary, as volumes increase and fees related to distribution, pipelines and storage would increase as well."
5. New Jersey Resources Corporation (NJR). Things look great in the "Garden State," as this company also stands to score from projected natural gas price hikes. "Its principal subsidiary is a local distribution company serving more than 500,000 customers in Central and Northern New Jersey," Kelley says. "With approximately 90 percent of its net income coming from this part of the business, as well as midstream pipelines, storage and other natural gas services, we believe [earnings per share] would benefit greatly as natural gas consumption rises."
6. Boliden AB (BWJ). Now's the time to think zinc, as Boliden, based in Stockholm, Sweden, is a major player in zinc production, just as the world's mines are starting to run out. "The prospects for prices going up are very good," Ray says. "Boliden has some new and expanded mines coming on that will bring on production just when the world runs out of zinc." The metal is a key component in making galvanized steel, used in car manufacturing to prevent rust.
7. Gold Miners ETF (GDX). With this exchange-traded fund trading at nearly $19 a share, now's the time when gold truly glitters. "This is the elite gold miners global exposure, and offers broad diversification by deposit, operations and geography," O'Donnell says. "And when inflation eventually returns, gold will soar in price." Meanwhile, central banks in China and Russia are raising their gold stockpiles. That's another sign that Gold Miners ETF stands, as the old-time miners say, to "hit pay dirt."
8. CF Industries Inc. (CF). Based in Deerfield, Illinois, CF Industries has recently moved into a "pure play," or a narrow business focus, as a nitrogen producer at a time when the U.S. imports much of its nitrogen to make fertilizer. Nitrogen prices also rise with corn prices, which is a likely outcome in 2015 after two record years of corn yields. "We see corn prices going up in the future, with supplies shrinking," Ray says. "That's very favorable for the company. Looking at the long-term horizon, it's a good time to buy this stock."
9. United States Gasoline Fund (UGA). This ETF is already climbing gradually from its two-year low of $29.48 in January, as it now trades for roughly $35, an increase of about 17 percent. That's still well under the two-year high of $64 reached in June 2014, giving the fund potential room to climb, given its past resilience. "Many pure-play oil ETFs, they never recovered after the plunge in prices in 2008, but UGA gasoline futures rebounded nicely over time," Feldman says. "Heading into the summer driving season, gas prices should start to move back up." So pumping up a profit could offset what you pay at the pump.
10. Kinder Morgan Inc. (KMI). Could Kinder Morgan have a pipeline to profits? It's currently the largest energy infrastructure company in America, with 80,000 miles of pipelines and 180 storage terminals. "Approximately a third of the natural gas distributed in the U.S. moves through its network," Kelley says. And unlike other natural gas and oil players, "Eighty-five percent of the company's earnings are from fees charged for natural gas and other products moving through its pipelines, with essentially no direct exposure to the actual price of the commodities."
