In this article, we discuss 5 commodity stocks to buy on the dip. If you want to see more commodity stocks in this selection, check out “Best Store of Value”: 10 Commodity Stocks to Buy on the Dip.
5. Ingersoll Rand Inc. (NYSE:IR)
Number of Hedge Fund Holders: 31
YTD Share Price Decline as of July 8: 28.81%
Ingersoll Rand Inc. (NYSE:IR) is a North Carolina-based company that specializes in mission-critical air, fluid, energy, specialty vehicle and medical technologies in the United States, Europe, the Middle East, Africa, and the Asia Pacific. The stock has declined about 29% year to date as of July 8. In May, the company raised full-year 2022 organic revenue growth outlook by 100 bps to 8%-10%, confirming total revenue growth of 11%-13% and increasing adjusted EBITDA range to $1,385 to $1,425 million, up 16%-20% over the last year.
Barclays analyst Julian Mitchell on July 8 reiterated an Overweight rating on Ingersoll Rand Inc. (NYSE:IR) but lowered the price target on the shares to $55 from $60. The analyst likes industrial stocks that display “resilient business models”, in addition to valuations that have already been beaten down.
According to Insider Monkey’s data, 31 hedge funds were long Ingersoll Rand Inc. (NYSE:IR) at the end of the first quarter of 2022, with combined stakes exceeding $815 million. Henry Ellenbogen’s Durable Capital Partners is the largest shareholder of the company, with approximately 5 million shares worth $248.6 million.
Here is what Artisan Mid Cap Fund has to say about Ingersoll Rand Inc. (NYSE:IR) in its Q4 2021 investor letter:
“Ingersoll Rand is a global market leader with a broad range of mission critical flow creation technologies (pumps, compressors, etc.) for industrial and medical applications. The company’s recent Q3 results were solid and support our belief it is making the right investments in R&D and acquisitions to elevate its sustainable revenue growth rate. We have been particularly encouraged by the important role IR’s products can play in reducing the greenhouse gas intensity of manufacturing facilities. With an increasingly visible organic and acquisition-driven growth capability and further margin upside from the Gardner Denver merger, we added to our position as the market appears to be underappreciating the transformation underway at the company.”
4. Cleveland-Cliffs Inc. (NYSE:CLF)
Number of Hedge Fund Holders: 48
YTD Share Price Decline as of July 8: 28.81%
Cleveland-Cliffs Inc. (NYSE:CLF) produces flat-rolled steel products in North America. On July 6, B. Riley analyst Lucas Pipes reaffirmed a Buy rating on Cleveland-Cliffs Inc. (NYSE:CLF) but lowered the price target on the shares to $39 from $47 ahead of the Q2 results. According to the analyst, inflation pressures still affect industry margins, but Cleveland-Cliffs Inc. (NYSE:CLF) is positioned well despite ongoing concerns of a global economic slowdown due to its “robust relationships with leading North American automakers”. Cleveland-Cliffs Inc. (NYSE:CLF) stock has declined about 29% year to date as of July 8.
Among the hedge funds tracked by Insider Monkey, 48 funds were bullish on Cleveland-Cliffs Inc. (NYSE:CLF) at the end of Q1 2022, with collective stakes worth $1.6 billion, up from 36 the previous quarter worth $952.7 million. Ken Fisher’s Fisher Asset Management featured as the leading shareholder of the company, with more than 11 million shares valued at $356.3 million.
3. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 54
YTD Share Price Decline as of July 8: 13.48%
Caterpillar Inc. (NYSE:CAT) was founded in 1925 and is headquartered in Deerfield, Illinois. The company manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. Caterpillar Inc. (NYSE:CAT) is a notable dividend aristocrat, with 28 years of consecutive dividend growth under its belt. Caterpillar Inc. (NYSE:CAT) stock has stumbled about 13.5% year to date as of July 8.
On June 8, Caterpillar Inc. (NYSE:CAT) declared a $1.20 per share quarterly dividend, an 8.1% increase from its prior dividend of $1.11. The dividend is payable on August 19, to shareholders of the company as of July 20.
Cowen analyst Matt Elkott on July 7 maintained an Outperform rating on Caterpillar Inc. (NYSE:CAT) and lowered the price target on the stock to $225 from $255. The analyst expects a wide, longer-term recovery in most sectors, but the macro environment and forex could create hurdles along the way. He shifted his estimates downward due to ongoing supply chain challenges, higher input costs, possible foreign exchange headwinds, rising interest rates, and an economic slowdown.
According to Insider Monkey’s data, 54 hedge funds were bullish on Caterpillar Inc. (NYSE:CAT) at the end of Q1 2022, up from 53 funds in the earlier quarter. Bill & Melinda Gates Foundation Trust is the largest stakeholder of the company, with 7.35 million shares worth $1.6 billion.
Here is what Oakmark Funds has to say about Caterpillar Inc. (NYSE:CAT) in its Q2 2021 investor letter:
“Having followed the company closely for north of a decade, Caterpillar is a name we know well. For much of its history, the operating efficiency of the company left much to be desired, but its underlying competitive position was rarely in doubt. A series of actions over the past decade (e.g., LEAN implementation, improved service mix, optimized manufacturing footprint) helped to narrow the gap between Caterpillar’s potential and its realized results, driving material margin expansion and strong share price performance. In our view, the company remains among the highest quality industrials in the market, but its underlying business is cyclical, which can translate to large swings in both performance and investor sentiment over short time periods. Our ability to focus on the long-term, sustainable earnings power of a business (rather than getting distracted by near-term fluctuations) is our most significant edge when investing in cyclical businesses. Due to the inherent volatility in Caterpillar’s end markets and operating performance, we suspect we’ll have a future opportunity to own this high-quality business at a more attractive price once the cycle turns and today’s enthusiasm wears off.”
2. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 57
YTD Share Price Decline as of July 8: 27.25%
Builders FirstSource, Inc. (NYSE:BLDR) is a Texas-based company that supplies building materials, manufactured components, and construction services to homebuilders, sub-contractors, and customers in the United States. The stock has declined 27.25% year to date as of July 8.
BMO Capital analyst Ketan Mamtora on May 17 reaffirmed an Outperform rating on Builders FirstSource, Inc. (NYSE:BLDR) and lowered the price target on the shares to $90 from $96. The company’s Q1 earnings beat also marked a “record quarter, with tight markets and faster pass-through of prices boosting Builders’ margins in the near term”, the analyst told investors. The analyst also reported that the company’s robust balance sheet offers financial flexibility and the valuation is attractive at present levels.
Among the hedge funds tracked by Insider Monkey, 57 funds were long Builders FirstSource, Inc. (NYSE:BLDR) at the end of March 2022, with combined stakes valued at $1.8 billion. Coliseum Capital is the leading shareholder of the company, with 5.5 million shares worth $358.4 million.
Here is what Black Bear Value Fund has to say about FirstSource, Inc. (NASDAQ:BLDR) in its Q1 2022 investor letter:
“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.
The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.
The management team has been using their prodigious free cash flow to both acquire new businesses and buy in their stock. While I historically always liked their business, their historic high-debt levels gave me pause. They have right sized their balance sheet and are taking a very thoughtful view on capital allocation on behalf of shareholders.
BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 11-15% free-cash flow yield so little growth is needed for us to compound value at high rates.”
1. Deere & Company (NYSE:DE)
Number of Hedge Fund Holders: 66
YTD Share Price Decline as of July 8: 12.99%
Deere & Company (NYSE:DE) is an Illinois-based company that manufactures industrial equipment. The company operates through four segments – Production and Precision Agriculture, Small Agriculture and Turf, Construction and Forestry, and Financial Services. The stock has declined about 13% year to date as of July 8.
Citi analyst Timothy Thein upgraded Deere & Company (NYSE:DE) on July 7 to Buy from Neutral with a price target of $340, down from $435. The analyst slashed estimates and targets “across the board” in the machinery sector but observed short-term estimates “should be largely insulated” given large backlogs and embedded pricing. However, he upgraded Deere & Company (NYSE:DE) to Buy as he sees a “2:1 upside/downgrade case” from present share levels. He recommended leaning towards large-cap names like Deere & Company (NYSE:DE).
According to Insider Monkey’s data, 66 hedge funds were long Deere & Company (NYSE:DE) at the end of the first quarter of 2022, up from 61 funds in the last quarter. Jean-Marie Eveillard’s First Eagle Investment Management is a significant shareholder of the company, with 984,517 shares worth $409 million.
Here is what Harding Loevner Global Equity Fund has to say about Deere & Company (NYSE:DE) in its Q1 2022 investor letter:
“John Deere’s (NYSE:DE) newest tractor, the 8R, can operate autonomously 24 hours a day, controlled by the farmer via mobile app, with full data download of crop specifications and field analysis available via the cloud. Another example of how automation is reaching deeply into traditional manufactured products is John Deere. After 185 years in business, the iconic farming equipment maker has turned the tractor into a platform for software and service revenues. Deere’s newest model, the 8R, can operate autonomously 24 hours a day, controlled by the farmer via mobile app, with full data download of crop specifications and field analysis available via the cloud.
Revenue comes from both the initial capital outlay and monthly subscription fees. During a recent call, Deere’s CEO John May emphasized a point we hear increasingly from leading industrial companies: “The need for autonomy is here today. The demand for the solution is real. We already have customers paying for autonomy.” CFO Ryan Campbell went a step further, suggesting that growth in such digitization technologies will be the primary driver of Deere’s future margin improvements, by increasing the recurring revenues attached to each piece of equipment it sells.”
You can also take a look at 11 Best Dividend-Paying Stocks to Buy Now and 10 Stocks That Cathie Wood and Steve Cohen Love.
/daily-newsletter]
