The euro is falling and the U.S. dollar is soaring, with the two currencies approaching parity. Not too long ago, the euro was trading at around $1.60 in U.S. dollars and now the currency is valued at around $1.20 and falling fast.
The forex market is abuzz with talk of how the euro is breaking through four-year lows against the U.S. dollar, and that has commodity traders on the defensive. After all, commodities like crude oil, gold, timber, corn and steel are priced in U.S. dollars. That means that as the greenback falls these goods command higher prices – think about $4 gasoline and crude oil pushing $150, like what we saw in 2008 as the dollar faded away. Now the tables have turned, with a stronger dollar keeping commodity prices in check.
However, commodities shouldn’t be seen as forex or currency investments. Take gold, for instance. Despite a stronger dollar the safe haven investment has soared. Or take timber prices, which are much more susceptible to construction demand than the dollar and the euro.
If you have been thinking of sitting out the commodity market while the dollar is strong, think again. These six commodity plays from six different InvestorPlace experts will help keep your portfolio on the right track no matter what the euro or U.S. dollar does. Simple trading strategies sometimes are the most effective — just buy a stock that’s growing and your profits will grow too!
Let’s look at what each expert has to say about these hot commodity investments:
Hot Commodity Investment – Callon Petroleum
- Picked by: Louis Navellier, editor of Quantum Growth.
- Strategy: The fastest-moving, most profitable growth stock
I’m never bullish on a company unless it has proven it can grow its sales and earnings. That’s just what Callon Petroleum Company (CPE) is an oil and gas company that utilizes computer-aided techniques, such as enhanced 3-D surveys, to explore and develop oil and gas fields. Callon Petroleum mostly operates in the waters of the Gulf of Mexico and onshore in Alabama, Louisiana and Texas. Natural gas accounts for the bulk of the company’s production. In 2008, Callon estimated that its proved reserves stood at 54.8 billion cubic feet of natural gas equivalent. Natural gas prices are at near-decade lows so I expect people to flock to it in the place of oil and coal. The company became profitable in a big way two quarters ago, with earnings of $2.27 a share when Wall Street was expecting a mere 3 pennies! That blowout surprise notwithstanding, Callon Petroleum has topped EPS estimates by at least 40% in the last four quarters and is showing great growth potential.
Hot Commodity Investment – Gold Trust ETF
- Picked by: Robert Hsu, editor of China Strategy
- Strategy: The hottest Asian stocks
In January, China’s State Administration of Foreign Exchange announced that it wanted to take a more active stance in managing its $800 billion foreign reserves. Simply put, this means China will buy less dollar and more gold. That’s significant because the Chinese central bank is currently the second-largest holder of U.S. Treasuries after Bank of Japan. According to the IMF, China currently has just 1.4% of its total foreign exchange reserve in gold — the lowest amongst major central banks. Many central banks have more than 5% of their total reserves in gold bullions. If China boosts its gold holdings (currently at 600 tons) to 5% of its total reserves, gold could make recent highs look like chump change! My preferred way to invest in gold and profit from this trend is with the SPDR Gold Shares (GLD), an exchange-traded fund that seeks to replicate the performance, net of expenses, of the price of gold bullion. This is the purest way to play gold, and the best way to profit from China’s stockpiling of the yellow stuff.
Hot Commodity Investment – Teekay Offshore
- Picked by: Bryan Perry, editor of Cash Machine
- Strategy: High dividend yield investments that also turn a profit
While not a conventional commodity play, Teekay Offshore Partners (TOO) is a great way to play the commodity market and get paid a big dividend. TOO is a leader in marine transportation and storage services to the offshore oil industry. The company hauls crude oil and condensates from offshore oil fields to onshore terminals and refineries. It also uses conventional oil tankers for transcontinental seaborne shipping, and floating storage units allow for on-site storage for oil field installations. TOO recently announced its fourth-quarter 2009 financial results. The company generated distributable cash flow of $18.2 million, up from $13.4 million the previous quarter, and declared a cash distribution of 45 cents per unit. I fully expect this quarterly payout to climb in the year ahead as well as the price of the units in response to a sequentially higher payout. The stock just paid a dividend in May, but its annualized yield of 9.5% makes it quite attractive in anticipation of the next payout.
Hot Commodity Investment – Rayonier
- Picked by: Richard Young, editor of Intelligence Report
- Strategy: The best bedrock investments for protection and profits
My friend Jon Markman picked Rayonier (RYN) as a swing trade commodity stock at the end of April. While I agree with him on the upside for this pick, I disagree with the horizon of the trade. Rayonier is a great long-term investment, and with a current dividend of 4.5% it’s a stock that you’re better off holding on to. RYN stock is engaged in the sale of timber and timberlands, the production of high-value-added performance cellulose fibers, and the manufacture of dimension, specialty lumber, and medium-density fiberboard (MDF). The company is also a massive landowner, with over 2.5 million acres of timberland in the United States and New Zealand. Timber is a strange and unique commodity. Like oil and gas, extraction can be put off until prices rise. But unlike those two, the inventory actually grows in the meantime — becoming more valuable as trees thicken. The current lull in homebuilding means fatter trees and fatter profits for Rayonier down the road. That makes this a great commodity investment for the long-term.
Hot Commodity Investment – L&L Energy
- Picked by: Hilary Kramer, editor of Breakout Stocks Under $5
- Strategy: Small but innovative companies on the cusp of huge profits
There can be no doubt that China has tied its future growth directly to coal. According to The New York Times, China uses more coal than the U.S., Europe and Japan combined and plans to build new, more efficient “clean” coal plants at the rate of one per month. Currently, coal supplies 80% of China’s electricity, and demand is only expected to grow in the decades ahead. Companies that can help meet China’s ongoing demand for coal have the potential to do extremely well for decades. One such firm is L&L Energy (LLEN), which is headquartered in Seattle, but focuses directly on serving energy markets in China. Through its various subsidies it operates coal mines, coal wholesale, coking and coal-washing facilities in China. Because LLEN is directly on the ground in China it is well-positioned to reap the benefits of China’s rising need for coal-based power.
Hot Commodity Investment – OxyPete
- Picked by: Richard Band, editor of Profitable Investing
- Strategy: Low-risk retirement investing that beats the market
Though many crude oil stocks have been battered by BP’s recent troubles, Occidental Petroleum (OXY) has been holding strong and bucking the industry trend. OxyPete has proven reserves of 2.9 billion barrels of oil equivalent in the U.S., the Middle East and Latin America. The company also owns 76% of OxyVinyls, which is the top North American producer of polyvinyl chloride (PVC) resin, adding some diversification to its business. Occidental boasted a superb 206% reserve-replacement ratio for 2009, showing that the company is actually growing its crude oil stockpiles instead of diminishing its finds. What’s more, finding costs halved in 2009 meaning that OXY is one of the most efficient crude oil exploration companies on the market. As energy demand picks up with the recovery, OXY stock should pick up as well.
Each of these six InvestorPlace advisors were recommending these stocks in their respective newsletters at the time of this writing.