Look For Opportunities in the Commodity Space as Prices Pull Back

Commodities have had a strong performance this year. However, prices in everything from gold and silver to base metals have pulled back in the past few weeks. For investors interested in the long-term opportunity in the commodity space, it may be close to a buying point.

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  • That’s because the slight pullback in commodity prices has hit many commodity stocks even harder. With many of these stocks now in a correction off their recent highs, it may be time to buy.

    One potential place to buy right now is with steel companies. While China has been stockpiling the metal, the potential for that buyback to end is pushing prices lower.

    One leader in the space is Steel Dynamics (STLD). The share price has dropped as steel prices also come down. However, with shares already trading at 8 times earnings, it may be time to buy.

    Steel Dynamics is down nearly 20% from its recent highs in March. A swing higher in commodity prices over the summer could lead to a similar swing higher.

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  • Action to take: Long-term commodity investors may like shares here. Plus, at current prices, Steel Dynamics also pays a 1.5% dividend.

    For traders, the November $150 calls, last trading for about $2.40, could see mid-double-digit returns or better over the summer. Traders can likely lock in a profit well before expiration.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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