Citi’s global commodities research team led by Max Layton believes that “opportunities abound” in the resource complex and has a list of 15 related trade and investment ideas. Mr. Layton does not expect a runaway bull market but sees commodities supported by investor demand (funds are underweight the sector), supply concerns for oil and copper, low inventories in many subsectors and stronger-than-expected demand for some materials.
A few of the trade ideas are not convenient for the average investor – a bullish view on corn futures and long positions in NAPTHA crack spreads are good examples – but the majority can be put in action relatively easily. Mr. Layton’s bullish view on cocoa futures has already been vindicated.
Citi analysts recommend that oil producers lock in current 2025 prices through the futures markets as the strategist believes Brent crude prices will fall to US$60 next year as non-OPEC supply rises. Mr. Layton also believes copper prices will rise from the current levels of just under US$9,000 per tonne to US$12,000 in the next two years.
The team sees gold rising by 6 per cent and silver 20 per cent within the next year thanks to strong physical demand from central banks. They see a short-term surge in palladium prices amid a long-term bear market. The analysts are tactically bullish on North American natural gas prices and see the possibility of US$5/MMBTU next year. (Benchmark prices are currently trading well below US$2.)
Mr. Layton recommends buying iron ore producers when the commodity price gets below US$90 per tonne as he sees upside to potentially US$120 per tonne. The team expects nickel prices to continue to weaken as Indonesian supply creates a surplus. Like nickel, Citi expects lithium prices to drop – by 33 per cent – as the result of a large global surplus that may result in mine closures.
As far as making these ideas actionable, natural gas producers are obvious candidates. It will take some research to find oil companies with the most commodity price hedging but that would be another. Copper miners will benefit from forecasted price increases along with precious metals and iron ore producers.
-- Scott Barlow, Globe and Mail market strategist
Also see: Out of nowhere, commodities are on a run
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The Rundown
‘I have been dead wrong on that call’: David Rosenberg on failed predictions and where to invest now
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Also see, from Mike Dolan: Nagging thoughts of a stock market correction
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Do stocks return 10 to 12%, on average? No, and that’s a dangerous assumption
Numerous online financial content creators claim that stocks can be expected to return an average of 10 to 12 per cent a year. This belief is misguided and can lead to some questionable advice, argues portfolio manager Benjamin Felix.
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Someone is going to make a ton of money from owning Gildan Activewear Inc., says Andrew Willis. But the board of directors at Gildan (GIL-T) seems inexplicably determined to ensure that a U.S. private equity fund, rather than the Montreal-based clothing company’s current shareholders, cashes in on its future growth.
Others (for subscribers)
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Globe Advisor
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What’s up in the days ahead
Rob Carrick is back with the next installment of the ETF Buyer’s Guide, this one on U.S. equities funds. Plus, we’ll have the second installment of our interview with David Rosenberg. He’ll give us his thoughts on Canadian housing and competitiveness, and what keeps him ticking after years as a high-profile and very prolific economist.
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Compiled by Globe Investor Staff