Bulletin
Investor Alert
Jeff Reeves

Jeff Reeves's Strength in Numbers Archives | Email alerts

July 27, 2016, 8:17 a.m. EDT

Commodity stocks are back this time — really

Supply is declining, as rig counts and mining data show, and that’s good for share prices

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    S&P 500 Index (SPX)
  • X
    Newmont Corp. (NEM)
  • X
    ONEOK Inc. (OKE)

or Cancel Already have a watchlist? Log In

By Jeff Reeves


Getty Images
The number of U.S. oil rigs hit an all-time low earlier this year.

It has been quite a run for commodity stocks in 2016.

The best performers in the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.24%  year-to-date include a host of energy and materials names, including

  • Newmont Mining Corp. /zigman2/quotes/205356474/composite NEM +1.21%  , a copper and gold miner up about 125% since Jan. 1

  • Oneok Inc. /zigman2/quotes/205201756/composite OKE -0.83% , a natural gas pipeline company up almost 85% since Jan. 1

  • Range Resources Corp. /zigman2/quotes/205059849/composite RRC -1.89%  , a small oil and gas producer up roughly 70% since Jan. 1

While the resurgence for commodity stocks easily could have been written off as simply a dead-cat bounce this spring, the continued outperformance of miners and frackers since then seems to hint that this is more than just a short-lived trend.

Yes, investors have had their hearts broken by commodity stocks in the past. And yes, serious concerns about demand and pricing remain — and in the middle of earnings season, that matters more than ever.

But an increasing number of investors are piling into miners and energy stocks with an eye on more than just short-term potential.

And there’s good reason why.

The supercycle swings both ways

In January, the Bloomberg Commodity Index  — a benchmark of almost two dozen different natural resources — bottomed out at its lowest point since 1999, with a nearly 70% decline from its peak before the Great Recession.

All across 2015, we heard about the clear end of the so-called commodities “supercycle” that had featured rising prices alongside rising demand across the late 1990s through the financial crisis, and how those days were long gone.

But let’s be clear: While comparisons from peak to trough make good headlines, they are just plain hysterical. Yes, it’s true that crude oil /zigman2/quotes/209726633/delayed CLU26 0.00%  plummeted from above $145 a barrel in mid-2008 to a low in the mid-$20s in February. But if you believe in the so-called supercycle, you have to look at the flip side — the potential for oil to rally more than 1,000% as it did from short-lived lows near $12 a barrel in 1998 to the pre-crisis peak.

Why should we believe that oil’s rally is now finished just because it has snapped back and stabilized, when history shows there’s so much more potential?

Read: Here’s your second chance to buy into oil’s recovery

Perfectly timing the ride up or the ride down is, of course, a fool’s errand. But it seems generally true that we are much closer to the bottom of the commodity price cycle than we are the top.

/zigman2/quotes/210599714/realtime
US : S&P US
3,638.35
+8.70 +0.24%
Volume: 1.22B
Nov. 27, 2020 2:07p
loading...
/zigman2/quotes/205356474/composite
US : U.S.: NYSE
$ 58.48
+0.70 +1.21%
Volume: 3.75M
Nov. 27, 2020 5:00p
P/E Ratio
18.43
Dividend Yield
2.74%
Market Cap
$46.42 billion
Rev. per Employee
$307,785
loading...
/zigman2/quotes/205201756/composite
US : U.S.: NYSE
$ 37.23
-0.31 -0.83%
Volume: 1.55M
Nov. 27, 2020 5:00p
P/E Ratio
25.66
Dividend Yield
10.05%
Market Cap
$16.68 billion
Rev. per Employee
$3.51M
loading...
/zigman2/quotes/205059849/composite
US : U.S.: NYSE
$ 7.78
-0.15 -1.89%
Volume: 2.15M
Nov. 27, 2020 5:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$2.03 billion
Rev. per Employee
$3.97M
loading...
/zigman2/quotes/209726633/delayed
US : U.S.: Nymex
$ 45.93
0.00 0.00%
Volume: 0.00
Nov. 27, 2020 5:06p
loading...
1 2
This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.