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3 Stocks To Ride The New Commodity Supercycle Bull

By (Jesse Cohen/ MarketsFeb 24, 2021 11:02
3 Stocks To Ride The New Commodity Supercycle Bull
By (Jesse Cohen/   |  Feb 24, 2021 11:02
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Optimism about the global economic outlook has boosted the prices of a wide range of raw materials—including copper, nickel, iron ore, silver, oil, and even corn, wheat, and soybeans—to new highs in recent weeks, fueling talk of a new commodities supercycle.

Indeed, the Invesco DB Commodity Index Tracking Fund (NYSE:DBC), one of the sector’s main ETFs, has rallied around 16% year-to-date to reach its best level since November 2018. The S&P 500, for its part, is up just 4% over the same timeframe.

DBC Weekly
DBC Weekly

Underpinned by a slew of stimulus measures, successful COVID-19 vaccine rollouts, and a revival of demand from top consumer China, commodity prices look set to continue their march higher in the weeks and months ahead. Which means stocks of companies helping to provide these commodities could see significant gains as well.

Below we highlight three equity names likely to provide some of the best growth potential in the coming months. Each is well worth considering given the resurgence in global commodity prices.

1. Southern (NYSE:SO) Copper

Southern Copper (NYSE:SCCO) is one of the world's largest publicly traded copper miners. The company, which operates mines and smelters primarily in Mexico, Peru, and Chile, also ranks among the world's biggest producers of gold, silver, zinc, lead, and molybdenum. 

SCCO stock has more than doubled in value in the last 12 months, jumping 110%, as soaring base metal prices buoyed investor sentiment on the raw materials producer.

Shares, which rose to a new all-time high of $83.15 on Monday, closed at $79.27 last night, giving the Mexico City-based miner a market cap of around $61.3 billion.

SCCO Weekly
SCCO Weekly

As one of the world’s leading copper producers, it has enjoyed a surge in prices of the red metal, which recently climbed above the $4-level for the first time in nearly a decade.

Investor sentiment was lifted further in the last week of January, when Southern Copper announced earnings and revenue which easily topped consensus estimates, thanks in large part to higher sales volumes, and rising prices for copper, silver and zinc.

Earnings per share soared 90% from the year-ago period to $0.76, much better than expectations for EPS of $0.70. Revenue, meanwhile, climbed 27% year-over-year to $2.35 billon, easily beating estimates for sales of $2.1 billion.

Southern Copper mined 259,744 tons of copper during the reported quarter, up 1.3% from the same period a year earlier.

To add to those encouraging numbers, Southern Copper’s board of directors authorized a quarterly dividend of $0.60 per share, up 20% from its October quarterly dividend of $0.50 and triple its April quarterly dividend of $0.20.   

2. EOG Resources

EOG Resources (NYSE:EOG) is one of the largest independent oil and natural gas companies in the United States. Its core business operations involve exploring, developing, producing, and marketing crude oil, natural gas, and natural gas liquids.

Shares of the Houston, Texas-based energy major have gotten off to a strong start this year, rallying 33% so far in 2021, reaping the benefits of higher oil prices.

EOG stock climbed to a one-year high of $68.16 yesterday, before ending at $67.85. At current levels, it has a market cap of $39.6 billion, making it the fourth largest U.S. oil producer, behind ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP).

EOG Weekly
EOG Weekly

The low-cost oil producer is expected to continue to benefit from improving crude market fundamentals in the months ahead, now that West Texas Intermediate, the U.S. oil benchmark, topped $60 per barrel for the first time in more than a year. 

EOG has previously said that it only needs oil to average $36 a barrel this year to maintain its current production rate and 2.6%-yielding dividend.

With oil prices well above that level, EOG is poised to produce significant free cash flow, giving them the funds to repay debt, buy back shares, and even boost their dividend.

EOG is scheduled to report fourth quarter earnings on Thursday, Feb. 25, after U.S. markets close. Consensus estimates call for earnings of $0.36 per share on revenue of $2.89 billion. 

Beyond the top- and bottom-line figures, investors will keep an eye on EOG's update regarding its production targets for its drilling locations across the Permian, Bakken, DJ Basin, and Powder River Basin regions. During the third quarter, EOG produced an average of 377,600 barrels per day from shale formations across the lower 48 states.

3. Deere & Company

Deere & Company (NYSE:DE) is one of the world’s leading manufacturers of agricultural, construction, and mining equipment. As such, the ongoing rally in grains and metals prices should bode well for the company in upcoming months, resulting in greater demand for crops and materials-handling equipment.

The Moline, Illinois-based tractor maker has seen its shares jump by around 86% over the past 12 months, far outpacing the returns of both the Dow Jones Industrial Average and the S&P 500.

After reaching a fresh record of $338.77 on Tuesday, DE stock ended at $337.41, giving it a market cap of roughly $106.1 billion.

DE Weekly
DE Weekly

Deere reported blowout quarterly results on Feb. 19, smashing expectations for both earnings and revenue as its benefits from the ongoing recovery in both the farming and mining industries.

The agriculture-and-heavy machinery equipment maker reported earnings per share of $3.87 for its fiscal first quarter of 2021, improving 137% from EPS of $1.63 in the same quarter a year earlier.

Revenue jumped 23% year-over-year to $8.05 billion, which was much higher than the estimated $7.21 billion, thanks to higher volumes of equipment sales.

The company's equipment sales saw an increase of $1.5 billion when comparing the first quarters of 2020 and 2021.

The upbeat results prompted Deere to boost its 2021 profit forecast, citing an improving outlook for equipment sales in a recovering global economy. The company now expects overall net income of around $4.8 billion, up from its late November forecast of $3.8 billion. 

3 Stocks To Ride The New Commodity Supercycle Bull

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3 Stocks To Ride The New Commodity Supercycle Bull

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