Are You Ready To Invest In The Next Commodity “Super-Cycle”?
Pop quiz. What are the three best performing sectors over the past year?
You can probably guess one or two. Tech stocks have been the biggest winners, particularly those engaged with the stay-at-home lifestyle. In fact, my High-Yield Investing subscribers and I are up 60% in the BlackRock Science & Technology Trust (Nasdaq: BSTZ) fund since adding it to our portfolio in September.
Not far behind is the communications sector, which includes social media king Facebook (Nasdaq: FB), video game publisher Activision (Nasdaq: ATVI), and video streaming giant Netflix (Nasdaq: NFLX). Media and entertainment names have thrived during the pandemic, racking up a return of 25% over the past year.
But the bronze medal winner may surprise you…
It’s not healthcare or consumer staples. Instead, it’s a group that has been largely overlooked lately: basic materials. This broad sector includes miners, chemical producers, and suppliers of construction materials.
Unlike technology and communications, this sector is delivering big gains despite Covid, not because of it. How big? Well, here are a few examples… Southern Copper (NYSE: SCCO) has soared 82% over the past year. Lithium producer Albemarle (NYSE: ALB) has more than doubled since last June. And fertilizer maker Mosaic (NYSE: MOS) has jumped 61% in just the past three months.
The evidence is mounting. Commodities are back. And 2021 could bring even stronger returns for many of these stocks. In fact, some of Wall Street’s best and brightest are forecasting this to be the beginning of a new golden age for natural resources that could last well into the next decade.
It’s Time To Shine
As some of you may know, I spent seven years covering metals, energy, timber, crop nutrients, and other commodities. All three of the stocks cited above are former recommendations from my former premium service.
I’ve seen commodities go from boom to bust and back to boom again many times. And after a long dry spell, we’re at another one of those inflection points. There isn’t a single specific catalyst behind this rally, but rather a convergence of positive trends.
We could begin by charting the yield on 10-Year Treasury Inflation-Protected Securities (TIPS). But I won’t. It’s about as interesting as watching paint dry — and I don’t want any of you drifting off. However, like many overlooked metrics in the financial world, this one has far bigger implications than you might realize.
You see, the spread between ordinary government bonds and CPI-indexed TIPS bonds is a market barometer of inflation expectations. And inflation impacts everything… from your 401(K) to the value of your home.
For the first time in years, traders are now betting that inflation rates will nudge past 2% — above the upper end of the Fed’s comfort zone. It’s easy to see why.
The dovish central bank is printing tens of billions each month to purchase Treasuries and mortgage-backed securities to keep borrowing costs low. Meanwhile, Congress is already working on the next round of direct cash payments and stimulus benefits. Another $1.9 trillion, give or take.
Let’s connect the dots…
Unprecedented Keynesian-esque spending. Ultra-loose monetary policy. Runaway debt. Rising inflation. It all points to a devalued dollar – sparking demand for precious metals.
The Case For Gold (And More)
In case you missed it, gold prices climbed 25% last year (the sharpest gain in a decade) and briefly set a new record high above $1,950 per ounce. Well-respected wealth management firms like Bank of America are quietly advising their institutional clients to buy, forecasting prices to break $3,000.
Even Warren Buffett has changed his tune. After frequently dismissing gold as a poor long-term investment, Berkshire Hathaway scooped up 21 million shares of Barrick Gold (NYSE: GOLD) last year. Those purchases may have been made by one of his younger investing protégés – still, Buffett probably signed off on the $500 million outlay.
And other precious metals have been even stronger lately. After plunging last spring, platinum rebounded to a 4-year high a few months ago. Meanwhile, silver sprinted nearly 50% higher in 2020, bulling its way to an 8-year peak near $30 per ounce (long before Reddit investors started piling in).
Precious metals are widely viewed as a safe haven in times of macro or geopolitical uncertainty and a reliable hedge against a depreciating dollar. So you can understand their appeal right now. The appetite for physical bullion is off the charts.
The U.S. mint reports that sales of American Eagle gold coins surged 290% last month — and it still wasn’t enough to meet demand. Severe backlog in the supply chain has led to dealer shortages, driving up premiums.
Source: U.S. Mint.gov
Now, I’m not suggesting you cash out your retirement accounts and start hoarding bars and coins. A small allocation in precious metals is the smart way to go. Plus, there are more convenient solutions like the SPDR Gold Shares (NYSE: GLD) ETF. But I’ve always maintained that it’s better to invest in gold and silver producers than speculate on metals prices. If for no other reason, miners can deliver profits (and pay dividends) even when prices sag.
More importantly, though, the commodity world doesn’t begin and end with gold. In fact, it doesn’t even crack my top-ten.
There’s molybdenum, a corrosion-resistant metal with one of the highest melting points of any element (4,753 degrees Fahrenheit). That makes it perfect for making high-strength steel alloys found in harsh environments such as jet engines and power turbines.
And diammonium phosphate (DAP), a key nutrient used to grow corn and other crops. With grain prices soaring, farmers are expected to apply record amounts of fertilizer this year. DAP prices have already risen more than 50% over the past six months to around $400 per metric ton.
And forest products. The housing boom (buoyed by record-low mortgage rates) have sent lumber futures spiking more than 100% over the past year to a record near $950 per 1,000 board feet.
And construction aggregates. The prospect of increased infrastructure project spending has stoked demand for sand and gravel, boosting the shares of suppliers like Martin Marietta Materials (NYSE: MLM).
The list goes on and on. Frankly, there’s just too much to cover in this space in one article. So later this week, I’m going to follow up and make the case for a few underappreciated commodities.
In the meantime, if you’re hunting for high yields in this market, I invite you to check out my latest report…
We’re constantly looking beyond the usual suspects over at High-Yield Investing. We’re finding yields that double, triple, even quadruple the market average. And we don’t sacrifice safety to find them, either.
If you’d like to join us in our search for the best high yields the market has to offer, then I invite you to learn more here.