This Sudden Commodity Shortage Bodes Well for Best-of-Breed Firms

With inflation continuing to come in hot, investors are turning to commodities. It’s been less than 18 months since oil prices briefly traded at negative prices thanks to some desperate traders.

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  • Now, the pain is coming at the gas pump as oil prices are likely to buck a seasonal trend higher, just as winter sets in and natural gas prices are also on the rise.

    Nearly every company in the space will benefit. Some are already preparing shareholders with specific predictions. ExxonMobil (XOM) stated that higher prices will likely boost its third-quarter earnings by $1.5 billion.

    Like many energy companies, Exxon still trades below its pre-pandemic levels, but these higher energy prices might give shares the room they need to move higher. The company is still coming off a few losing quarters, but in its most recent quarter shares traded at 11 times forward earnings.

    Action to take: Investors looking for yield right now can still get it here, as shares yield 5.9 percent. The price will likely continue to tick up with energy prices as well, so investors need only look for oil prices to stop rising to take profits while getting paid handsomely along the way.

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  • For traders, the high dividend and large-cap company status points to a slower move than other energy companies, but an aggressive call option like the January $70 calls, last going for about $0.85, could pay off well should energy prices keep moving higher.

     

    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 of the companies mentioned in this article.