Wall Street rarely agrees on anything, so it's notable that
virtually all of the majormarket strategists are in agreement on
one theme: Get ready for abear market inbonds . Seeking safety in a
troubled globaleconomy , investors have poured tens of billions of
dollars intobond funds during the past five years, pushing bond
yields down to all-time lows. But as the global economy starts to
build a head of steam in 2013 and beyond, bond yields are likely to
rebound while bond prices are likely to fall, leading to a major
While many market watchers say the flow out of bond fundswill
lead to a major inflow for stock funds, you shouldn't forget about
commodities, which always benefit when major economies start to
strengthen. Yet simply buying a broad basket of commodities is
unwise. Some commodities will see rising prices as demand outstrips
supply, while other commodities -- most notably natural gas -- must
continue to wrestle with a supply glut. (Natural gas still has
ample opportunities -- if you know where to look for them).
Before we take a closer look at the most promising commodities
for 2013, here are a few caveats.Commodity price moves are often
inversely related to the U.S. dollar, so if the dollar strengthens
in 2013, then commodity price gains would be blunted. Of course,
the converse is true as well. Why would the dollar strengthen? That
would be the likely result of a U.S. economy that starts growing at
an accelerating pace -- at least in relation to the still-weak
A second caveat: China has been, and will continue to be, the
single greatest driver of commodity prices. As we exit 2012, the
Chinese economy appears to have dodged an expected slowdown, and
the new government is expected to take steps to keep that economy
humming in 2013. Indeed, it's the prospect of another year of solid
economic growth in China that would lead to a rally in
So without further ado, here are next year's best commodities to
Copper: the perfect backdrop
A quick glance at a two-year price chart for copper implies a
troubled supply/demand backdrop.
Indeed, the moribund U.S. construction market has crimped demand
for copper-intensive plumbing, as is surely the case in Europe as
well. Yet the demand picture should improve in 2013, as commercial
and residential construction is expected to move higher in the
United States. Equally important, global copper production isn't
keeping up, so a range of metals analysts say demand will exceed
supply in 2013, 2014 and beyond. In the next part of this series of
articles, I'll take a closer look at the copper fundamentals, and
the best ways to invest in this multi-purpose metal.
Silver shines anew
Thespot price for silver is also well below recent highs: It
surged to $48 an ounce in the spring of 2011 when the global
economy flashed signs of an upturn, though it has fallen more than
30% since then. Often pursued along with gold as a safe haven in
potentially inflationary times, silver has the added charm of
rising industrial use. An improving global economy, coupled with a
fairly tight supply backdrop, should help silver -- and the
involved in silver-mining -- to post fresh gains in 2013.
The farm belt rebound
The epic drought of 2012 led to reduced U.S. farm incomes, and a
resulting pullback in spending on a range of agricultural chemicals
and equipment. Will the drought persist in 2013? It's hard to know,
but we can pinpoint the supply/demand picture for various farming
inputs, and few have such a positive backdrop as fertilizer. In a
subsequent article in this series, I'll pinpoint the fertilizer
stocks with the greatest potential upside in 2013.
The broad-based play
Even as I dig deeper into copper, silver and fertilizer stocks,
there's a particular stock that shouldn't be ignored when talking
about commodities. It mines a wide range of metals, has a strong
set of assets and deep financial flexibility, and remains quite
undervalued even after a recent sell-off.
I'm talking about
Teck Resources (
, which sports a $20 billionmarket value and $10 billion in annual
sales. The company is a low-cost producer of copper, zinc and coal.
This means the company can generate profits even as rivals must
shutter higher-priced mines.
The real reason to focus on this stock: The value of all its
mines, if acquired piecemeal by another mining firm, then it would
cost the equivalent of $65 a share, according to analysis conducted
by Merrill Lynch. In effect, you can own this company'sasset base
for roughly half of the private market value. In a consolidating
industry, that's a clear positive.
How about oil?
Wondering where oil fits into the 2013 commodities outlook?
Signals about oil's direction are mixed right now. Some industry
analysts say the world is over-supplied with oil, so oil prices
will sharply recede once tensions in the Middle East recede. But
others say a stronger U.S. economy in 2013 could boost demand,
pushing oil toward the $125 a barrel mark. We'll likely need to
wait until next spring to get a clearer read on the direction of
Risks to Consider:
As noted earlier, China drives commodity prices, and any major
slowdown in that economy would force commodity prices lower.
Action to Take -->
Commodities have been out of favor for much of 2012, thanks to
global macro-economic concerns. Yet as the United States, China,
Brazil and other economies expand in 2013, and as funds flow out of
bonds, commodities could be a major beneficiary.
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