Commodity prices continue to rise amid various supply chain disruptions. This causes panic buying of commodities. As a result, many commodity stocks have released strong numbers in their recent earnings reports, and banking analysts seem to think inflationary prices will continue to push earnings higher.
I would say there is an additional dynamic for many metal producers; a new paradigm is on the way for energy production. Many of these producers that I mention in this article have prepared themselves well to deliver future changes in energy sources, such as nuclear and hydrogen operations.
As for the traditional energy providers that I mentioned, the application of new technologies and the tendency to move to brownfield projects instead of exploiting virgin land has helped to create more shareholder value. .
My top choices of commodity stocks today are:
- Barrel gold (NYSE:GOLD)
- BHP Group (NYSE:BHP)
- Cameco (NYSE:CCJ)
- Chevron (NYSE:CVX)
- Devon Energy (NYSE:DVN)
- Sibanye-Stillwater (NYSE:SBSW)
- Suncor (NYSE:EU)
Commodity Inventories: Barrick Gold (OR)
Barrick is one of the world’s largest gold producers and may well become the leading gold mining power as it continues to conduct exploration projects alongside Newmont (NYSE:NEM) through its Nevada Gold Mines joint venture. Although there has been an issue due to maintenance requirements, NGM is expected to contribute significantly to Barrick’s revenue growth going forward.
This comes with the tangible results that Barrick is experiencing through its 2019 Randgold merger, which helped drive Barrick’s revenue growth by 34.2%, and 29.6% since 2019.
Of course, Barrick Gold shares have fallen over 30% in the past year, but investors need to understand that this is due to mergers and acquisitions or high exploration activity. The positive results of these investments have started to be reflected in Barrick’s financial statements: it has managed to reduce its balance sheet by approximately 28% since 2019 while increasing its net profit margin by approximately 74% in the same time frame. .
Wall Street is bullish on Barrick’s outlook, with Tipranks analysts rating it as a solid buy, with a price target almost 50% above its current price.
BHP Group (BHP)
The outlook for the BHP group is improving as it should benefit from the restructuring of the company. The diverse producer of natural resources is poised to unify its two parent companies into a single entity, allowing corporate actions to proceed faster and remunerate shareholders more effectively.
Restructuring benefits aside, the company has just come off a solid six months. In August, BHP announced a 69% year-over-year increase in EBITDA, a 66% reduction in total debt and a 140% increase in free cash flow.
Goldman Sachs expects iron ore prices to hit the $ 195 level to push BHP shares further in the next 12 months, which could be a big factor in BHP earnings.
The company expects earnings to be sustainable going forward as it released a special dividend after the half-year results. BHP’s dividend yield is now over 10%, and there is still plenty of room for a dividend increase if you look at its net profit margin (18.46%) exceeding its five-year average.
BHP stock could be both a dividend game and a potential index beating stock for the foreseeable future.
Raw material inventories: Cameco (CCJ)
This title is probably the riskiest bet of the lot, but it could be the most rewarding. Cameco is one of the uranium stocks on Reddit crowd radar lately.
I’m not surprised that retail investors have taken notice of the uranium outlook.
Cameco is the world’s largest producer of uranium, and uranium is primarily used for nuclear fuel. A growing number of indicators suggest that nuclear power could be one of the main sources of low-carbon energy in the years to come.
Nuclear power requires less waste management than current renewable options such as solar power, according to a source at Barclays. Nuclear power is also convenient because it does not depend on seasonality and does not require large storage units either. Safety and storage issues remain a concern, but the debate remains that improving reactor safety mechanisms could address many dangers.
Nuclear energy currently represents 10% of the world’s energy. China is expanding its 49 operational nuclear power plants, with 17 under construction and another 100 expected to be built before 2035.
The scarcity of uranium means it is incredibly elastic, and such nuclear demand could benefit Cameco.
Chevron is truly the cornerstone of the energy stocks I have chosen today. Other stocks trade at high betas while Chevron is a less risky option, often seen as a dividend game.
The oil and gas giant has returned to profitability in the second quarter because its operations normalized after the Covid-19 disruptions. Chevron topped its revenue estimate by $ 1.15 billion and posted a profit of $ 3.08 billion, in turn achieving EPS of 11 cents.
With WTI crude oil trading around $ 70 a barrel, Chevron’s $ 40 breakeven point comes with a breather, leading me to conclude that margins will remain strong for the foreseeable future.
Acquisition activity also improves revenue and cost reduction capacity. Chevron’s acquisition of Noble Energy in 2019 is starting to bear fruit by strengthening its presence in the Permian Basin, strengthening its operations in the DJ Basin and Eagle Ford.
Chevron stock is expected to benefit from its annual share buyback commitment of $ 2-3 billion. Chevron is also a dividend aristocrat and has a 5.5% dividend yield, with five consecutive years of dividend growth.
It’s a good buy all around.
Commodity stocks: Devon Energy (DVN)
Devon Energy took everyone by surprise in August by beating its second-quarter profit estimate by $ 420 million. Operating cash flow jumped 85% year over year and free cash flow also increased 600%, leading to non-GAAP EPS of 7 cents.
Devon Energy’s performance was ignited by its merger with WPX to strengthen its presence in the Delaware Basin. Synergies from the transaction are expected to increase free cash flow margins, which could add intrinsic value to the security.
Another factor that I like is the company’s use of production technology and its shift from entirely new projects to existing ones, resulting in better reinvestment rates. Fitch took note and recently upgraded Devon’s credit rating from BBB to BBB +.
Sibanye delivered stellar half-year results, as prices within its platinum metals group strengthened. Sibanye’s semi-annual report said it had revenue of $ 6.18 billion (87.3% year-over-year increase). Additionally, Adjusted EBITDA reached $ 2.79 billion, up from $ 990 million a year ago. Due to its sublime results, Sibanye declared a dividend of $ 0.77 per American Depositary Receipt.
There is a lot of optimism around Sibanye to move forward. Sales of rhodium and lithium to provide renewable energy sources added to its already strong revenue mix. Since the company acquired Lonmin in 2019, its platinum segment has supported revenue growth
This sparked a lot of optimism on Wall Street, with RBC Capital and JP Morgan expecting the share price to more than double.
Commodity Inventories: Suncor (SU)
Suncor is one of the most interesting energy stocks for me. Goldman Sachs recently removed Suncor from its conviction list. Reasons included a lack of catalysts and maintenance work at its Fort Hills plant.
However, I think any investor with a horizon of more than 12 months should benefit from having Suncor in their portfolio. The company delivers value from a variety of diverse operations, including oil sands, conventional production platforms, and owned 1,100 Petro Canada retail and wholesale locations. This allows him to take advantage of higher margins by having his own offer.
Maintenance on Fort Hill is expected to be done by the end of the year, which could see it come back to scale. Production forecasts are down to 45,000-55,000 barrels per day on average from the previous 65,000-85,000, but the long-term outlook remains.
Suncor’s valuation metrics are strong; The company has a rolling EV / EBIT ratio 135% higher than its industry, with a price-to-earnings ratio 38% above its industry median. And with a dividend yield of 3.5%, Suncor could offer investors the ideal combination of capital gains and dividend income.
At the date of publication, Steve Booyens held out for a long time CCJ, CVX, DVN, SBSW positions. The views expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.
Steve Boys co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and public relations ever since. Prior to founding the company, Steve worked in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for Investor place includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.