Commodities have been looking better since January. Oil, gold and silver and numerous other high-profile materials have waged double-digit recoveries. While that may be faint praise given the incredible beating commodities investors took in the previous three years, consider the alternative.
Stocks have been staggering downward from their record high this summer, and there is little talk of the market staging a long rally. Indeed, the S&P 500 Index is up a mere 4% for the year, and the second-longest bull market in history has analysts shouting about its vulnerability.
To be sure, investing in commodities is highly risky. Trading corn, copper, lumber, natural gas or heating oil futures requires a Zen-like tolerance for volatility and loads of ready cash to meet the potential margin calls that loom in the background.
Nor is their long-term prognosis necessarily good. Many experts see the past as a better indicator of their prospects than the present because they anticipate a long-term glut across the commodities spectrum.
Still, diligent investors are not without opportunities to invest profitably in commodities. Their best bets are in buying mutual funds or ETFs that have portfolios of natural resources companies or by investing in the individual companies that produce the commodities that are having the strongest recoveries.
While commodities trade at whatever price the market assigns them, companies can build on the price rebound to increase their profitability by investing in their company, making acquisitions, grabbing market and becoming more efficient. As might be expected, stocks of companies that get the biggest bounce often produce the commodities with the biggest price gains.