In this article, we discuss 10 commodity stocks to buy on the dip. If you want to see more commodity stocks in this selection, check out 5 Commodity Stocks to Buy on the Dip.
Commodities are coming down from the highs they reached in the first half of 2022, on the back of Russia-Ukraine war, supply chain constraints, and the rising inflation. However, the market is abuzz with speculation about the second half of 2022 and prices of commodities like natural gas, crude oil, grains, gold, iron ore, and lithium are expected to normalize in light of an upcoming recession. Oil prices have tanked to $100 per barrel, precious metals are forecasted to enter a large slump, and the demand for crops is also soft.
“Best Store of Value”
Despite the market outlook, many investment advisories remain bullish on the commodity sector. Goldman Sachs reiterated that commodity prices just have not topped out yet. Similarly, Stephen Volkmann, an industrials analyst at Jefferies, joined CNBC on July 7, saying that commodities remain the “best store of value” amid consistently rising rates and soaring inflation. He observed that the demand and supply fundamentals in agriculture have not changed, regardless of the pullback in some notable stocks, and Jefferies continues to be very bullish on commodities as a whole. He further noted that companies in his coverage have not reported signs of weak Q2 earnings and production also remains strong, with 9 to 12 months of backlogs. This makes the analyst question whether a recession really is on the horizon.
Some of the most notable commodity stocks to buy on the dip include Caterpillar Inc. (NYSE:CAT), Builders FirstSource, Inc. (NYSE:BLDR), and Deere & Company (NYSE:DE).
Photo by Francisco Fernandes on Unsplash
Our Methodology
We have selected commodity stocks that present an attractive buying opportunity. These stocks look cheap because of their YTD declines, and have long-term growth potential on the back of expectations that the demand of commodities will rebound. These stocks are popular among elite hedge funds tracked by Insider Monkey and have positive ratings from notable industry analysts.
Commodity Stocks to Buy on the Dip
10. Compass Minerals International, Inc. (NYSE:CMP)
Number of Hedge Fund Holders: 13
YTD Share Price Decline as of July 8: 38.47%
Compass Minerals International, Inc. (NYSE:CMP) was founded in 1993 and is headquartered in Overland Park, Kansas. The company distributes essential minerals mainly in the United States, Canada, Brazil, the United Kingdom. Compass Minerals International, Inc. (NYSE:CMP) stock has declined about 38.5% year to date as of July 8. Compass Minerals International, Inc. (NYSE:CMP) announced on June 29 that it would supply LG Energy with about 40% of its lithium carbonate and hydroxide annual production for 7 years starting in 2025. This is a positive catalyst for Compass Minerals International, Inc. (NYSE:CMP).
On May 23, Deutsche Bank analyst David Begleiter reiterated a Buy rating on Compass Minerals International, Inc. (NYSE:CMP) but lowered the price target on the stock to $55 from $73 after a “challenging” Q2.
According to Insider Monkey’s data, 13 hedge funds were bullish on Compass Minerals International, Inc. (NYSE:CMP) at the end of March 2022, with collective stakes worth $99 million, up from 12 funds in the last quarter, holding stakes in Compass Minerals International, Inc. (NYSE:CMP) valued at $86.7 million. Select Equity Group is the biggest shareholder of the company, with 588,175 shares worth approximately $37 million.
Like Caterpillar Inc. (NYSE:CAT), Builders FirstSource, Inc. (NYSE:BLDR), and Deere & Company (NYSE:DE), elite hedge funds are piling into Compass Minerals International, Inc. (NYSE:CMP).
Here is what Bernzott Capital US Small Cap Value Fund has to say about Compass Minerals International, Inc. (NYSE:CMP) in its Q1 2022 investor letter:
“Compass Minerals (NYSE:CMP): After being a bottom contributor last quarter, this salt and plant nutrient provider rebounded and was a top contributor on progress with their battery grade Lithium assets coupled with higher Lithium prices. We expect more positive announcements including off-take agreements and JV’s which should mitigate risk and provide visibility into growth potential. The balance sheet remains strong, and core salt and plant nutrient segments are rebounding and generating solid cash flow.”
9. ArcelorMittal S.A. (NYSE:MT)
Number of Hedge Fund Holders: 20
YTD Share Price Decline as of July 8: 31.10%
ArcelorMittal S.A. (NYSE:MT) is a Luxembourg-based integrated steel and mining company that operates in Europe, North and South America, Asia, and Africa. On June 9, the company completed its $1 billion share buyback program. ArcelorMittal S.A. (NYSE:MT) stock has declined over 31% year to date as of July 8.
ArcelorMittal S.A. (NYSE:MT) reported on July 8 that it is restarting steel exports to Russia from its ArcelorMittal Temirtau mill in Kazakhstan, which is in compliance with the Western sanctions on the recipient. In 2021, the company supplied 150,000 metric tons per month to Russia, which resulted in a revenue of $1.6 billion. The resumption of exports is a positive catalyst for ArcelorMittal S.A. (NYSE:MT).
Deutsche Bank analyst Bastian Synagowitz on July 7 maintained a Buy rating on ArcelorMittal S.A. (NYSE:MT) but lowered the price target on the shares to $39 from $53. According to the analyst, the company faces cyclical risks but a “trough” enterprise value and shareholder return prospects “remain supportive”. The analyst forecasts that ArcelorMittal S.A. (NYSE:MT) will post “another solid quarter”, due to its robust mining performance in Brazil and Europe.
Among the hedge funds tracked by Insider Monkey, 20 funds reported owning stakes in ArcelorMittal S.A. (NYSE:MT) at the end of Q1 2022, up from 17 funds in the preceding quarter. Rajiv Jain’s GQG Partners held the biggest stake in the company, comprising 8.6 million shares worth $275.80 million.
Here is what Voss Capital has to say about ArcelorMittal S.A. (NYSE:MT) in its Q4 2021 investor letter:
“ArcelorMittal is a global integrated steel producer trading at around 2x EBITDA which will likely generate over 50% of their market cap in free cash flow in the next 8-10 quarters. This is after a period of substantial deleveraging which now allows the company to use FCF primarily towards share buybacks. We also believe the company’s numerous joint ventures have an underappreciated $10+ billion of value. When accounting for this, we believe MT is even cheaper on a price/tangible book basis (~0.4x).
If the company can simply maintain its multiple while returning most, if not all, that FCF to shareholders in the form of buybacks, we believe 50%+ upside is conservative. Given the company’s deleveraged balance sheet, even if steel pricing and profitability decline materially, we believe the downside will be limited as historically MT trades in a range of 5-7x EBITDA versus the current 2x.”
8. Piedmont Lithium Inc. (NASDAQ:PLL)
Number of Hedge Fund Holders: 20
YTD Share Price Decline as of July 8: 30.76%
Piedmont Lithium Inc. (NASDAQ:PLL) is a North Carolina-based company that engages in the exploration and development of lithium projects in the United States. In the beginning of June, Piedmont Lithium Inc. (NASDAQ:PLL) was added to the Russell Microcap Index and the Russell 2000 Index. However, the stock has declined about 31% year to date as of July 8.
Cowen analyst David Deckelbaum on June 22 categorized Piedmont Lithium Inc. (NASDAQ:PLL) as one of the best small mid-cap, catalyst rich names and a North American lithium growth story. The analyst observed that Piedmont Lithium Inc. (NASDAQ:PLL) is an under-appreciated lithium company that has notable potential to build a name in the United States. The analyst reiterated an Outperform rating and a $90 price target on Piedmont Lithium Inc. (NASDAQ:PLL) shares.
Among the hedge funds tracked by Insider Monkey, 20 funds were long Piedmont Lithium Inc. (NASDAQ:PLL) at the end of the first quarter of 2022, up from 9 funds in the earlier quarter. The combined stakes increased to $73.4 million in Q1 2022 from $12 million in Q4 2021.
7. Kinross Gold Corporation (NYSE:KGC)
Number of Hedge Fund Holders: 22
YTD Share Price Decline as of July 8: 40.81%
Kinross Gold Corporation (NYSE:KGC) is a Toronto-based company that owns and operates gold properties in the United States, the Russian Federation, Brazil, Chile, Ghana, and Mauritania. The stock has declined about 41% year to date as of July 8. Stifel analyst Ingrid Rico reiterated a Buy rating on Kinross Gold Corporation (NYSE:KGC) on June 30 but lowered the price target on the shares to C$11 from C$11.50.
In the first quarter of 2022, 22 hedge funds reported bullish positions in Kinross Gold Corporation (NYSE:KGC), with combined stakes worth $276.4 million. Jim Simons’ Renaissance Technologies is the largest stakeholder of the company, with 24.60 million shares valued at $144.6 million.
6. Dover Corporation (NYSE:DOV)
Number of Hedge Fund Holders: 27
YTD Share Price Decline as of July 8: 31.71%
Dover Corporation (NYSE:DOV) is an American industrial conglomerate that manufactures engineering equipment, consumable supplies, aftermarket parts, software solutions, and support services. The company operates through Engineered Products, Clean Energy & Fueling, Imaging and Identification, Pumps and Process Solutions, and Climate & Sustainability Technologies segments. The stock has plummeted about 32% year to date as of July 8. The firm has increased its dividend consecutively for 66 years, which marks it as a prominent dividend king.
Dover Corporation (NYSE:DOV) announced in May that it is acquiring flow measurement device maker, Malema Engineering, for $225 million in cash and $50 million contingent upon the completion of set financial goals.
On July 8, Barclays analyst Julian Mitchell maintained an Equal Weight rating on Dover Corporation (NYSE:DOV) and lowered the price target on the shares to $128 from $140. The analyst likes a “barbell” approach of “resilient business models” and prefers cyclical names with increased residential or short cycle Industrial exposure, “whose valuations have already been punished”.
According to Insider Monkey’s data, 27 hedge funds were bullish on Dover Corporation (NYSE:DOV) at the end of Q1 2022, compared to 30 funds in the earlier quarter. Israel Englander’s Millennium Management is the largest shareholder of the company, with 787,447 shares worth $123.55 million.
In addition to Caterpillar Inc. (NYSE:CAT), Builders FirstSource, Inc. (NYSE:BLDR), and Deere & Company (NYSE:DE), Dover Corporation (NYSE:DOV) is a significant commodity play.
Click to continue reading and see 5 Commodity Stocks to Buy on the Dip.
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Disclosure: None. “Best Store of Value”: 10 Commodity Stocks to Buy on the Dip is originally published on Insider Monkey.
