March 26, 2023

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7 Best Commodity Stocks To Buy In 2023

Commodities are vital to global industries. Here’s how to benefit from their popularity without the danger of directly buying and selling them.

Most people’s exposure to commodities is limited to popular movies of the past: Trading Places with Eddie Murphy and Dan Aykroyd; 1972’s What’s Up Doc with Barbra Streisand and Ryan O’Neill; or, for a darker view, Enron: The Smartest Guys In The Room. That last one, from 2005, tells the story of how a company playing games in energy commodities imploded.

Traditionally, commodities aren’t stocks or bonds. They are things that companies and investors buy and sell on forward-looking contracts called futures. Do it right and you can make a bundle. But reckless trading and sudden price moves can leave someone owing more than they have in their bank account.

Luckily, you don’t have to break out in nervous sweat while investing in commodities. There are both stocks and exchange-traded funds (ETFs) that give you exposure without the potential grief of futures. Currently, there are some potential upsides in 2023.

“Most commodity markets are tighter than many people realize currently,” says Thomas Samuelson, chief investment officer at Vineyard Global Advisors. “As China’s economy recovers in 2023 due to the end of its Covid lockdowns in late-2022, its increased consumption will put the spotlight back on commodity markets. Despite the economic weakness of the past year, inventories of several key commodities have declined and are now sitting at critically low levels.”

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Here are some that experts found particularly appealing.

1. Albemarle (ALB)

While lithium has long been used in medication for certain psychological disorders, these days it’s more familiar to most people as a central material in lithium-ion batteries. That makes it critical for a range of industries, including mobile devices, defense, electronic vehicles and anything that depends on electrical power on the go. To give a sense of its critical position in manufacturing, General Motors
(GM) in late January 2023 announced it was investing $650 million into a mining company to develop U.S. sources of the metal.

But when it comes to lithium, several experts, including Daniel Milan, managing partner and investment advisor representative at Cornerstone Financial Services, turn their eye to Albemarle.

While not a pure play “commodity” stock, it has a strong mining business as a chemicals manufacturing company,” Milan says. “Most specifically interesting for ALB is the commodity lithium. In fact, ALB has been the largest provider of lithium for electric car batteries since 2020.”

On top of being in the right place at the right time, Albemarle has been a good stock performer, according to Milan. “[It] has had steady, increasing dividend growth for 28 years and the rapid growth of electric vehicles will only support that growth in an exceedingly strong fashion going forward,” he says. “The company is based in the U.S. but has valuable lithium mining assets in Chile and Australia, which are extremely valuable for future growth both from a dividend and EPS standpoint. This is reflected in a forward price-to-earnings (P/E) ratio of only 10x currently compared to their current P/E of about 21.4x.”

2. VanEck Vectors Rare Earth/Strategic Metals ETF (REMX


Rob Isbitts, a former experienced wealth advisor and mutual fund manager and founder of Sungarden Investment Publishing, isn’t bullish on commodities overall in 2023 because of potential headwinds, but does think that REMX, an ETF that invests in a set of companies in the so-called rare-earth metals—a set of minerals of critical importance in many industries—is a good choice.

“Strategic metals are used in the construction of jet engines, hybrid cars, steel alloys, wind turbines, flat screen televisions and cellular phones,” Isbitts says. “Rare earth metals, a subset of strategic metals, are a collection of 17 chemical elements that are essential in many of today’s most advanced technologies, with particular applications in electronics.” He says the substances are typically found as byproducts when companies look for other minerals, like manganese, titanium and tungsten.

“REMX seems to me to represent a niche segment of the metals market that investors are less familiar with than gold and silver, which both look like they will have a tough time adding major gains this year,” Isbitts says.

According to S&P Global Market Intelligence, roughly half of the ETF’s company holdings are in Asia, with almost 21% in the U.S. The rest is split between Latin American/the Caribbean and Africa/Middle East. Just before the pandemic set in, the price was in the high $30s.

3. Allegheny Tech (ATI)

Often, people focus on precious metals like silver and gold, or even rare earths. “But flying under the radar have been base metals such as nickel and aluminum,” says Patrick France, a senior instructor at VectorVest, a vendor of stock prediction and forecasting software. “They have been rallying off their lows for the past three months, yet no one has been discussing these heating up commodities.”

That’s a reason why France likes Allegheny Tech. “They manufacture and sell specialty components and materials utilizing these base metals such as nickel, cobalt and titanium,” he says. “ATI has been outperforming forecasts and is expected to continue to beat earnings forecasts for at least the next 12 months, and as the old saying goes, money goes where money grows. ATI’s main customers come from energy, aerospace and defense, automotive and electronic segments of the market that stand to benefit greatly for the foreseeable future from potential and current legislation such as the CHIPS
Act and Build Back Better Act. With American energy infrastructure in desperate need of an update, ATI could end up a clear winner over the next year and beyond.”

Looking for undervalued and mispriced stocks beyond commodities to add to your portfolio? Forbes’ top investment experts share the names of undervalued stocks with strong fundamentals in this exclusive report, 7 Best Stocks To Buy Now. Click here to download it before the Wall Street wakes up to the stocks’ true value.

4. Freeport McMoRan (FCX)

Then there is one of the kings of industrial metals: copper. “FCX is a leading copper producer with reserves of 107.2 billion pounds of copper,” Thomas Samuelson says. But the company’s position gives exposure both to copper and energy markets.

“Copper is a critical metal used in electric vehicles and renewable energy,” he adds. “As EV’s become more mainstream, enormous amounts of copper will be needed. Conventional gas-powered cars contain only 18-49 pounds of copper while a battery-powered EV contains 183 pounds. A fully electric bus requires a whopping 814 pounds of copper.”

Copper is also important in renewable energy like windmills and solar, as well as electrical infrastructure. “Global copper demand for alternative energy sources is expected to double to 9.5 billion pounds by the end of the decade. In 2023, global copper demand (for all uses) is expected to increase 30% year-over year,” he added.

5. Steel Dynamics


If copper carries the electrical bloodstream of industry, the bones are made of steel. “Even if it sounds old-fashioned, steel remains a backbone of the economy,” says David Russell, a market strategist for online brokerage TradeStation. “It’s hard to build anything or provide services without somehow creating demand for this key industrial metal. Steelmakers were mostly left for dead after the subprime crisis and collapse of commodities a decade ago, but money returned to them as the pandemic boosted demand for goods. Now after some pain from the Fed, steel mills are boosting production and investors are starting to notice.”

Russell points to Steel Dynamics. “STLD was added to the S&P 500 in December 2022,” so a significant company in terms of size.

6. SPDR Gold MiniShares (GLDM


Gold is a commodity seen as providing “stability in poor markets and economic climates to long-term institutional strategic investors,” according to a paper and statistical analysis called Gold as a Strategic Asset, written for the World Gold Council by New Frontier Advisors.

Dr. Robert Michaud, chief investment officer and partner at New Frontier, says that ETFs can provide “total exposure to an asset allocation that is unique.” Unlike the other listings, this ETF is backed by physical gold and, sometimes, cash, rather than business done with and around the commodity itself.

Most commodities are goods that people and companies consume and use up. “Many of these consumption-based commodities in a typical commodities basket are highly correlated to the stocks in your portfolio,” because the commodities themselves move with the fortunes of the businesses that use them, Michaud says.

He also mentions the grande dame of gold ETFs: SPDR Gold Shares (GLD
). “GLDM has nearly the lowest expense ratio at 10 basis points and it has very good liquidity,” Michaud says, while giving similar exposure to gold. The low expense ratio means that you lose less value over time. However, there is one type of investing where he says GLD is better: if you expect to buy and sell shares frequently. GLDM has a higher transaction cost.

7. Diamondback Energy (FANG)

Finally, although many are wary of oil companies, this is an industry that isn’t disappearing in the next year or two. “Angola, Nigeria and Venezuela have seen steady production declines since 2016 due to corruption, neglect and mismanagement,” Samuelson says. “This means most of the supply will need to come from Saudi Arabia and U.S. shale producers.

He sees oil supply and demand as a result getting “very tight again by the end of 2023 as the world will be running at 98%-99% of capacity” and suggests low-cost oil and natural gas producer Diamondback.

“FANG is better positioned than its peers due to its capital and production discipline that will extend into 2023 thanks to sound execution and low break-evens,” he says. “For example, the company’s finding and operating cost is only $11.13 per barrel versus current crude oil prices of $80 per barrel, which may rise into the hundreds of dollars as supply and demand tighten later in 2023. Production should increase in the low to mid-single digit range in 2023, contributing to upside for the stock along with higher oil prices.”

Looking for undervalued and mispriced stocks beyond commodities to add to your portfolio? Forbes’ top investment experts share the names of undervalued stocks with strong fundamentals in this exclusive report, 7 Best Stocks To Buy Now. Click here to download it before the Wall Street wakes up to the stocks’ true value.