Commodities have been on a strong rally in the past few months. The price of crude oil has turned from $-38 to more than $60 a barrel, while platinum has more than doubled in the past few months. The closely-watched Bloomberg Commodity Market (BCOM) has jumped by more than 50% since April last year.
Bloomberg Commodity Index
At the same time, analysts at JP Morgan have said that we are in the third energy supercycle, meaning that the trend could continue. In this article, we will look at some of the best commodity stocks you can invest in today.
BHP Group (BHP)
- Market cap: $184 billion
- 2020 revenue: $46.2 billion
- Dividend yield: 3.0%
Formerly known as BHP Billiton, BHP Group has grown to become the biggest mining company in the world by market capitalization. The company operates around the world, including the countries like South Africa, Australia, China, Chile, and Canada.
BHP mines several commodities, including copper, iron ore, nickel, coal, petroleum, and potash. Iron ore is its most important material, followed by copper, coal, and petroleum. It sells most of its commodities in China, which is the biggest market for them.
BHP has experienced substantial revenue growth in the past few years. In 2020, higher commodity prices and demand from China saw its revenue rise to more than $46.2 billion, up from $42.9 billion a year earlier. In 2016, it had annual revenue of more than $26 billion.
Unlike many miners, BHP is also highly profitable. In 2020, its net profit fell to $6.94 billion from the previous $7.9 billion because of costs associated with the virus.
BHP is an excellent commodity stock for several reasons. First, the company has a diversified business that will benefit if the energy supercycle works out. Second, many countries are investing billions of dollars in infrastructure as part of their pandemic recovery response. This will lead to more demand for some of its commodities like copper and iron ore.
Third, in the past few years, BHP has worked to boost its balance sheet. The company has more than $9.4 billion in cash and short-term investments. At the same time, it has reduced its total long-term debt from more than $33 billion in 2016 to $16.2 billion.
Finally, BHP has a long track record of paying and increasing its dividend. It has a dividend yield of about 3.0% and a payout ratio of about 89%. While the payout ratio is high, the company can sustain paying dividends for the next few years.
BHP is listed in London and Johannesburg, but American investors can buy its American Depositary Receipts (ADR).
BHP vs. S&P 500
Rio Tinto (RIO)
- Market cap: $149 billion
- 2020 Revenue: $44.6 billion
- Dividend yield: 6.70%
Rio Tinto is a giant mining company headquartered in London. Like BHP, the company has operations around the world. It has mines in Canada, Australia, Madagascar, and South Africa, among other countries.
Rio Tinto makes most of its money from iron ore, which is an important component of manufacturing steel. In 2020, it made more than $27 billion from iron ore. Its other important commodities are aluminum and copper. It also makes a lot of money in energy and minerals.
In 2020, the company made more than $44.6 billion in revenue, up from $33.7 billion in 2016. In this period, its profit increased from more than $4.6 billion to more than $10 billion.
RIO is a good commodity company because of its fast-growing business, higher margins than that of its peers, and a high dividend yield. The company has a yield of 6.70%, which is higher than that of its comparable peers. Also, like BHP, the company has boosted its balance sheet in the past few years. Its total long-term debt stands at $12.3 billion, while its total cash and short-term investment have risen to more than $13 billion.
Rio Tinto vs. S&P 500
- Market cap: 26.84 billion
- 2020 revenue: 7.53 billion
- Dividend yield: 0.95%
Lumber has been among the best-performing commodities in the past few months. In total, the price of random length lumber has jumped by more than 120% in the past 12 months. This performance is primarily because the housing market has remained relatively strong because of low-interest rates.
Weyerhaeuser is an American company that owns more than 10.7 million acres of timberland in the country. It also has more than 14.7 million acres in Canada. The company operates as a Real Estate Investment Trust (REIT), which means that it has to distribute most of its profits to shareholders every year.
Weyerhaeuser has seen its revenue grow from more than $6.6 billion in 2016 to $7.5 billion in 2020. Its annual profit has also risen to $797 million.
Investing in Weyerhaeuser is a good idea because the firm has a long track record of growth. It also has a pricing advantage because of its size. Most importantly, it is one of the few publicly traded companies that deal with lumber directly. Also, it is expanding its business to the energy industry, where it is providing oil and gas, wind and solar, and bioenergy solutions.
Weyerhaeuser vs. S&P 500
- Market cap: $10.06 billion
- Revenue: $2.17 billion
- Dividend yield: N/A
Silver has been a strong commodity in the past few months. Its price has risen from a 2020 low of $11 to almost $30, which is a 130% gain.
Analysts expect that the price of silver will continue rising in the near term because of the ongoing transition to clean energy and the expected economic rebound. Also, the overall weak US dollar will probably lead to a higher silver price in the near term.
Fresnillo, a Mexican company listed on the London Stock Exchange (LSE), is one of the best silver companies to invest in. Its revenue grew to more than $2.17 billion in 2020 from $1.44 billion in 2016. Its net income has also grown to more than $191 million.
The company is an excellent investment because it is one of the biggest silver miners in the world. Therefore, if its price rises, there is a likelihood that the company will benefit. Second, it has a solid balance sheet, with more than $560 million in cash and total long-term debt of $816 million. Third, it has some of the biggest silver reserves in the world.
Since Fresnillo is listed in the LSE, American investors can only invest in it in the over-the-counter (OTC) market. Also, they can buy the iShares Silver Miner ETF (SLVP), where it is a major constituent.
Fresnillo vs. S&P 500
Commodities have done relatively well in the past few months. While it is unclear whether this trend will continue, these four companies are bound to do well in the near term. If you are unsure about which commodity stocks to invest in, you can decide to invest in ETFs like Invesco DB Commodity Index Tracking Fund, iShares Commodities Select Strategy ETF, and KFA Global Carbon ETF.