How to invest in commodity stocks: key picks for 2024
Discover the top commodity stocks that could offer potential growth opportunities in today's market. Learn how to invest in these shares with our guide.
What are commodity stocks?
Commodity stocks are shares of companies that produce, process, or distribute raw materials such as oil, metals, or agricultural products. These stocks often correlate with commodity prices, making them attractive to investors seeking exposure to the commodities market.
Investing in commodity stocks can provide diversification benefits to your portfolio, as they often perform differently from other sectors. However, it's important to note that commodity stocks can be volatile due to fluctuations in commodity prices and global economic conditions.
Some investors prefer commodity stocks over direct commodity investments because they offer the potential for dividends and long-term growth. Additionally, investing in shares is generally more accessible than trading physical commodities.
Before investing in commodity stocks, it's crucial to understand the factors that influence their performance, such as supply and demand dynamics, geopolitical events, and technological advancements.
Top oil and gas stocks to watch
Oil and gas stocks have long been popular among investors due to the world's reliance on fossil fuels. While the transition to renewable energy is underway, oil and gas companies remain significant players in the global economy.
Select oil and gas stocks versus S&P 500 year-to-date performance chart
1. ExxonMobil
One of the top oil stocks to watch is ExxonMobil (XOM). As one of the world's largest integrated oil companies, ExxonMobil has a diverse portfolio of upstream and downstream operations. The company has been investing in low-carbon solutions, positioning itself for the energy transition.
TipRanks Smart Score and analyst consensus
2. Shell
Another noteworthy stock is Shell plc (SHEL). Shell has been focusing on its liquefied natural gas (LNG) business and renewable energy projects, aiming to reduce its carbon footprint while maintaining profitability.
TipRanks Smart Score and analyst consensus
3. ConocoPhillips
ConocoPhillips (COP) is also worth considering. The company has a strong presence in US shale oil production and has been expanding its global operations. Its focus on cost reduction and operational efficiency has helped it weather market volatility.
TipRanks Smart Score and analyst consensus
4. Enbridge Inc
For those interested in midstream operations, Enbridge Inc (ENB) is a leading pipeline company with a stable business model and attractive dividend yield. Open a share dealing account to invest in these oil and gas stocks.
TipRanks Smart Score and analyst consensus
Mining stocks with potential
Mining stocks can offer exposure to various metals and minerals, including precious metals, base metals, and rare earth elements. These stocks often benefit from increasing demand for raw materials in construction, technology, and clean energy sectors.
Select mining stocks versus S&P 500 year-to-date performance chart
1. Rio Tinto
Rio Tinto (RIO) is a major player in the mining industry, with a diverse portfolio of assets including iron ore, copper, and aluminium. The company's focus on operational efficiency and strong balance sheet make it an attractive option for investors.
TipRanks Smart Score and analyst consensus
2. BHP Group
BHP Group (BHP) is another mining giant worth watching. With operations spanning iron ore, copper, coal, and petroleum, BHP has a well-diversified portfolio. The company's commitment to sustainability and cost management could position it well for future growth.
3. Newmont Corporation
For those interested in precious metals, Newmont Corporation (NEM) is the world's largest gold mining company. Gold is often seen as a safe-haven asset during economic uncertainty, making Newmont an interesting option for risk-averse investors.
TipRanks Smart Score and analyst consensus
4. Freeport-McMoRan
Freeport-McMoRan (FCX) is a leading copper producer that could benefit from increasing demand for the metal in electric vehicles and renewable energy infrastructure. Consider using a demo account to practice trading these mining stocks before investing real money.
TipRanks Smart Score and analyst consensus
Agricultural commodity stocks to consider
Agricultural commodity stocks can provide exposure to the food and beverage industry, which tends to be more stable during economic downturns. These stocks can also benefit from increasing global population and changing dietary habits.
Select agricultural stocks versus S&P 500 year-to-date performance chart
1. Archer-Daniels-Midland
Archer-Daniels-Midland (ADM) is a global leader in agricultural processing and food ingredient production. The company's diverse product portfolio and global presence make it a solid choice for investors interested in the agricultural sector.
TipRanks Smart Score and analyst consensus
2. Nutrien
Nutrien Ltd (NTR) is the world's largest fertiliser producer by capacity. As global food demand grows, Nutrien's products are likely to remain in high demand, potentially driving long-term growth for the company.
TipRanks Smart Score and analyst consensus
3. Bunge
Bunge Limited (BG) is another major player in the agricultural commodities space, specialising in oilseed processing, grain trading, and food ingredients. The company's global reach and focus on sustainable practices could make it an attractive investment option.
TipRanks Smart Score and analyst consensus
4. Tyson Foods
For those interested in the meat industry, Tyson Foods (TSN) is a leading producer of chicken, beef, and pork products. The company's scale and efficiency could help it navigate challenges in the sector. Learn more about these companies in our guide to share investing.
TipRanks Smart Score and analyst consensus
Factors to consider when investing in commodity stocks
When evaluating commodity stocks, it's essential to consider several factors that can impact their performance. One crucial aspect is the price of the underlying commodity, which can be influenced by global supply and demand dynamics, geopolitical events, and weather conditions.
Company-specific factors are also important, such as operational efficiency, debt levels, and management quality. Look for companies with strong balance sheets, consistent cash flows, and a track record of navigating market volatility.
Diversification is key when investing in commodity stocks, as the sector can be cyclical. Consider spreading your investments across different commodities and regions to mitigate risk. You might also want to explore index funds that offer exposure to a basket of commodity stocks.
Keep an eye on regulatory changes and environmental policies, as these can significantly impact commodity companies. For instance, stricter emissions regulations could affect oil and gas companies, while increased focus on sustainable mining practices could influence mining stocks.
How to invest in commodity stocks
Investing in commodity stocks can be an exciting way to diversify your portfolio and potentially benefit from global economic trends. Here's a step-by-step guide to get started:
- Do your research on commodity stocks. Understand the factors that influence their performance and familiarise yourself with key players in different sectors.
- Open a share dealing account with us. Our platform offers access to a wide range of UK and international markets.
- Search for the commodity stock you want to trade in our platform or app. Use our research tools and market analysis to inform your decision.
- Choose the number of shares or value of money you'd like to invest. Remember to consider your risk tolerance and overall investment strategy.
- Place your trade. You can use various order types to manage your entry and exit points.
Remember to regularly review your investments and stay informed about market developments. Consider setting up price alerts to keep track of significant movements in your chosen stocks.
By following these steps and conducting thorough research, you can potentially capitalise on opportunities in the commodity stock market. Always remember that investing carries risks, and it's crucial to only invest what you can afford to lose.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
Speculate on commodities
Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1
- Wide range of popular and niche metals, energies and softs
- Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
- View continuous charting, backdated for up to five years
Live prices on most popular markets
- Forex
- Shares
- Indices
