3 Commodity Stocks to Buy on the Dip

commodity stocks - 3 Commodity Stocks to Buy on the Dip

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  • Cameco (CCJ) Cameco is cashing in on the surge in uranium prices.
  • Freeport-McMoRan (FCX) just formed a gorgeous bullish hammer candle at the rising 20-day moving average.
  • Alcoa (AA) is gunning for $100 per share.

On Tuesday, commodity stocks took a back seat to the rest of the market. But don’t let the short-term bout of weakness fool you. The trend remains higher and inflationary pressures continue to support bullish trades in just about any company in the commodity space. We’ve seen everything from energy to precious metals and industrial metals to agriculture soar higher throughout 2022.

Along the way, there have been a few continuation patterns form like breakouts and retracements. Each has been a gift that paid handsomely. I suspect the current setup will play out likewise. As such, I’m sharing three top commodity stocks to buy on the dip. If I’m being honest, they weren’t hard to find. The energy and basic materials sectors are littered with quality uptrends that just dropped for two to four days.

They now lie near support and offer low-risk entries for new buyers.

Ticker Company Current Price
CCJ Cameco $28.54
FCX Freeport-McMoRan $50.49
AA Alcoa $91.42

Cameco (CCJ)

Cameco (CCJ) stock chart with bull retracement

Source: The thinkorswim® platform from TD Ameritrade

Cameco (NYSE:CCJ) is flying high alongside uranium prices which recently hit their highest prices in over a decade. There are bullish undertones to uranium based on the Russia-Ukraine war and renewed global interest in nuclear energy. But we can make a case for more upside based on the price chart alone.

Since bottoming in late January, CCJ stock has been on a tear. But rather than go straight up, it has taken time to build multiple retracement patterns to give spectators a chance to climb aboard. The rising 20-day moving average has been a gathering ground for dip buyers, and we’re knocking on its door again. I’m particularly encouraged by the steady drumbeat of accumulation over the past two months.

Volume continues to crescendo during up days, confirming big buyers have been wading in. This is not a trend you want to bet against. It’s worth noting, there are other companies with exposure to uranium, but CCJ is arguably the best vehicle given its superior liquidity and available options. The cheap price tag and high implied volatility work well with selling puts.

The Trade: Sell the May $24 naked put for $1.

Freeport-McMoRan (FCX)

Freeport-McMoRan (FCX) stock chart with bull retracement pattern.

Source: The thinkorswim® platform from TD Ameritrade

Freeport-McMoRan (NYSE:FCX) takes its cues from the copper chart. And recently, the commodity has been dancing to a bullish beat. I find many similarities between the price action in CCJ and FCX. They’re both cheaper securities with fantastic liquidity and dollar-wide option strikes available. Like Cameco, Freeport has provided several chances to enter on a breakout or pullback to support.

In a weaker market, FCX would have pulled back more than two days before bulls rushed in. But that’s not what’s happening. Tuesday staged a massive intraday reversal. Even though prices closed in the red, they finished 5% off the lows to create a convincing hammer candle, increasing volume to boot.

If you think the march higher continues, consider entering bull call spreads.

Bull Call Spread: Buy the May $50/$55 call spread for $1.75.

Alcoa (AA)

Alcoa (AA) stock chart with bull retracement

Source: The thinkorswim® platform from TD Ameritrade

Alcoa (NYSE:AA) is the final favorite for today’s commodity stocks to shop. The bullish narrative for the Pittsburgh-based aluminum behemoth mirrors its predecessors. Inflation and an improving market backdrop have investors willing to chase. Prices are rising above all major moving averages. Tuesday was the third straight down day, but buyers swarmed aggressively at the 20-day moving average.

AA closed at the high of the session after a stunning turnaround across nearly all inflation-sensitive stocks. The psychologically significant round number of $100 is a stone’s throw away and should act as a magnet moving forward. I like building call spreads to prepare and profit for an eventual run to it.

The Trade: Buy the May $90/$100 call vertical spread for $3.70.

On the date of publication, Tyler Craig 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.

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