Commodity prices have been rising faster than stock prices recently, offering potential opportunities for commodities stocks to buy. Commodities are normally used to hedge against inflation, and higher prices can bring profits for miners and producers.
Normally, commodity prices reflect the dollar’s relative value as its purchasing power diminishes due to inflation. However, with a stronger dollar currently, picking which commodities stocks to buy becomes more complex.
Crude oil prices have increased due to geopolitical tensions in the Middle East. A drought in Africa has impacted cocoa prices. Increased demand for copper has accompanied the transition to cleaner energy sources. Central banks are accumulating gold due to fears of resurgent inflation.
Although rising commodity prices could present opportunities, economists are concerned that the rising costs may become a self-fulfilling prophecy. This could get businesses to raise prices and generate the inflation investors seek to hedge against.
After recent rises in U.S. inflation, commodities may provide a refuge for investors and potential opportunities in certain commodity stocks to buy.
Vale (VALE)
There are several commodities stocks to buy that could benefit from the price movement of iron ore. For instance, the world’s largest iron ore producer, Vale (NYSE:VALE), has been under pressure as iron ore prices have decreased due to slow demand from China. Yet, the Asian giant surprised with its Q1 growth earnings, it even pushed the price of iron ore itself higher.
Vale is one of the unusual commodities stocks to buy because it doesn’t have a fixed dividend policy. However, it notably passes on its free cash flow (FCF) after paying down debt. This means its stockholders could stand to benefit substantially and automatically if the price of iron ore continues its upward trend.
At a price-to-earnings (P/E) ratio of just 6.5x, it offers a whopping dividend yield of 14.8%. Analysts forecast a target of $16.50 per share, representing a 48% upside from the current price of $11.10 per share.
BHP (BHP)
BHP (NYSE:BHP) is one of the biggest mining companies in the world and one of the commodities stocks to buy. It operates fully integrated processes to mine, process and purify several commodities, including copper, coal, nickel, zinc, potash and iron ore. This gives the company a diverse range of exposure to commodities, especially as utilities and U.S. grid operators struggle to keep up with electricity demand.
Coal remains necessary for steel production, even as copper grows more important due to the energy transition. Nickel is also needed for alternative energy manufacturing, and potash supports agriculture. The business provides a sound financial base and returns, making it an interesting option for hedging against rising commodity prices without requiring an overly specialized focus.
BHP offers an attractive dividend yield of 5.2%. With a decent payout ratio of 94%, shareholders remain optimistic. Analysts’ forecasts project a price target of $64.25 per share, 10% higher than the current price of $64.25.
Sociedad Quimica y Minera de Chile (SQM)
Sociedad Quimica y Minera de Chile (NYSE:SQM) is one of the commodities stocks to buy as it lets investors gain exposure to the energy transition through one of the largest lithium reserves globally. Lithium is a main component of electric vehicle (EV) batteries, alongside copper, which is also produced by another division within SQM. Demand is expected to explode in the coming years.
Political factors within Chile previously delayed SQM’s entry into large-scale lithium production. However, these issues have been resolved, allowing the company to progress production plans. This may be one of the reasons analysts forecast a price target of $72.80, a whopping 52% higher than $46.02 presently.
Trading at a P/E ratio of 6.5x, SQM is the last of the commodities stocks to buy, providing a strong dividend yield of 10.9%. Notably, the company boasts a higher return-on-equity (ROE) of 36%, more than twice as large as the industry average of 15%.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.