While the stock market has been down over the past year, some sectors look set for a move higher. One such space is in commodities. Inflation remains sticky, which tends to keep prices of hard assets from declining too much.
Plus, for many commodities, the fundamentals look strong today. There’s high demand and potentially lower supply for a number of resources. A second year of the Russia/Ukraine conflict looks likely to keep the wheat market tight in particular.
One estimate is that wheat prices could rise as much as 20 percent as we get into the end of the spring. And that’s to say nothing of other crops.
This trend may lead to higher food prices later this year. But it could also be a boon for food producers.
A leading player in the space is
Archer Daniels Midland (ADM). The grain processor and producer was a strong player the last time food prices popped higher. But shares have been sliding for months, and the potential for higher food prices again may lead a turnaround for shares.
Action to take: Shares are now going for about 14 times earnings, a reasonable value for an industry leader in a commodity-heavy space. Shares also yield about 2.3 percent right now, and the company has done well growing that payout in recent years.
For traders, the September $80 calls, last going for about $3.65, offer enough time to benefit from a rally in shares. The option can likely see mid double-digit gains or higher in the months ahead.
Disclosure: The author of this article has a position in the company mentioned here, but does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.
