It’s Never Too Late to Add Commodity Stocks for Diversification
If you’re looking for one word that perfectly describes equity markets in 2022, volatile is a good choice. Investors are trying to process complex factors like soaring inflation, interest rate increases, and geopolitical turmoil, which has naturally led to some sharp selling pressure in recent weeks. While Thursday’s dramatic reversal might lead to a nice rally, it’s important for investors to understand that many of these issues are not going away anytime soon. Adding shares of companies that could outperform given the current backdrop we have in the market makes sense, particularly with the latest headlines hitting the tape.
That’s why investors might want to consider adding exposure to commodity stocks, which perform well during periods of inflation and can be a great way to diversify your portfolio. There’s also the possibility that commodity prices stay elevated given the conflict between Russia and Ukraine, which further warrants a look at stocks offering exposure to these important resources.
Let’s take a look at 3 commodity stocks to consider adding now:
Diamondback Energy (NASDAQ:FANG)
Energy stocks have been some of the strongest performers in the market to start the year, and while the sector might need some time to consolidate those gains, there are still plenty of good reasons to consider adding shares of a company like Diamondback Energy at this time. It’s an independent oil and natural gas company operating in two segments, the upstream segment, and the midstream operations segment. The company operates in the Permian Basin, which is the cheapest source of crude oil in the U.S., a great advantage that should make investors more confident in adding shares.
Diamondback Energy recently reported Q4 earnings per share of $3.63, beating the consensus estimate by $0.25 per share. After a strong 2021, investors should expect the company to capitalize on strong pricing throughout 2022 and return plenty of capital to shareholders. In fact, the stock is also worth a look for income, as Diamondback pays out dividends and recently boosted its annual dividend by 20% to $2.40 per share. Shares have been consolidating for a few weeks and could be on the verge of the next leg up, which means this is absolutely a commodity stock to consider adding now.
Newmont Corporation (NYSE:NEM)
Gold is another commodity that can help investors to diversify their holdings, and Newmont Corporation stands out as one of the best ways to do so. It’s the largest gold-mining company in the world, with assets in North America, South America, Australia/New Zealand, and Africa. Investors tend to view gold as a “safe-haven” asset during times of financial or political uncertainty, which certainly describes what we are dealing with in financial markets at this time. Newmont stands out as the premier gold mining stock to own thanks to a clean balance sheet, top-tier mining assets, and recent M&A activity that should benefit the company in the long term.
Newmont acquired a company called Goldcorp back in 2019 that should deliver nice synergies for years to come, while the company’s recent joint venture with Barrick Gold should also be viewed as a big positive. There’s also a lot to like about the 3.22% dividend yield here, which is another strong reason to consider adding shares. Newmont shares have been outperforming major indices throughout 2022 and are currently up about 7.5% year-to-date, and there’s certainly a chance this trend continues if we see more volatility in the market.
Rio Tinto Group (NYSE:RIO)
This is another metals and mining stock that investors should be looking at, especially since the stock recently reclaimed its 200-day moving average. Rio Tinto is a United Kingdom-based company that is engaged in the production of materials essential to human progress. Some of those materials include iron ore, aluminum, copper, and minerals, which are natural resources that play a vital role in the global economy. That bodes well for Rio Tinto as the world’s economy recovers from the pandemic and industrial production picks up again.
Rio Tinto delivered record financial results in 2021 that included net earnings of $21 billion, up 116% year-over-year, which is a strong reason to consider adding shares. The company also offers a very appealing 10.23% dividend yield and trades at a P/E ratio of 6.73, which tells us that shares could be a bargain at current levels. The bottom line here is that Rio Tinto is a well-run company with strong assets that should be at the top of your shopping list if you are looking for exposure to commodities.