If you’re a long-term commodity bull — like me — you’ve spent much of the last year licking your wounds. That’s because firms that produce the building blocks of modern society have been on a straight shot downward since the beginning of the year.
In fact, commodity stocks were the worst-performing S&P 500 group during the first six months of the year and have lagged behind the equity benchmark by the biggest gap in 15 years.
Much of the underperformance can be attributed to the slowing economic growth concerns from key demand drivers like China and India. As these two nations have stalled, the prices of everything from copper to corn have taken a downward turn. The strong rally in the U.S. dollar as well as the recent government shutdown and potential debt default isn’t helping matters either.
Yet, there could be reasons for commodities investors to get excited.
Shares of the miners, energy producers, chemical manufacturers and other commodity firms are now sitting at tantalizing bargains relative to the broader market. According to earnings estimates compiled by Bloomberg, the natural resources sector will increase earnings by more than 18% in 2014. That compares to just an 11% gain for the S&P.
Meanwhile, commodity firms currently trade for cheaper multiples than the index. For investors, the time could be at hand to buy a broad swath of the raw materials players before it’s too late to miss out on these bargains.