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What You Need to Know to Trade Natural Resources in 2014

By Matt Badiali, editor, S&A Resource Report
Friday, January 3, 2014

Is the bear market in natural resource stocks over?
 
The answer is "yes" if you consult the price action in the world's biggest and best resource stocks...
 
As regular Growth Stock Wire readers know, 2013 marked almost the second full year of a bear market in natural resources. This is the longest resource bear market in over a decade.
 
Several things caused this bear market. The Chinese economy, which is a major consumer of resources, slowed down. The U.S. and Europe also registered slow growth. This soured investors on the idea of owning resource equities. Also, precious metals are down big from their 2011 highs. This decline crushed gold and silver stocks.
 
The Dow Jones-UBS Commodities Index peaked in early 2011. For 2013, this index was heavily weighted toward oil and natural gas... with 10% in natural gas, 15% in crude oil, and 7% in refined products like gasoline. Metals made up another 30%. Gold made up 10% by itself. The rest of the index included agricultural commodities, like wheat and corn.
 
From its peak in 2011 to its low point in November 2013, the index lost over 30% of its value. You can see the drop in the three-year chart below...
 
ubs commodities index
 
But I think this bear market is over. As we showed last month, China's commodity demand is picking up again. This will play a major role in boosting demand for commodities overall. Also, price action from several major resource stocks tells us the bear market is likely over.
 
First, we'll note diversified resource giant BHP Billiton (BHP). It's one of the first stocks large-money managers think of when they talk resources. It's a good gauge of the resource sector in general. As you can see from the three-year chart below, BHP suffered from early 2011 to mid-2013. But shares have refused to budge lower than the $55-$60 area.
 
bhp price per share chart
 
Second, let's look at Freeport-McMoRan (FCX). It operates the world's largest copper and gold mine. Like BHP, it represents the resource sector as a whole. After falling from early 2011 to mid-2013, shares have stabilized.
 
fcx share price chart
 
Remember... natural resources are tremendously cyclical. That means their prices move in waves. They go through big booms and busts. The best time to buy natural resources is when everyone hates them. And nothing makes investors hate stocks more than a long bear market, like the one we've recently seen.
 
We have some fantastic investing opportunities across the natural resource space. I particularly like uranium, platinum, palladium, agriculture, and natural gas.
 
If your portfolio doesn't have any natural resource companies in it yet, don't wait too much longer. As we've seen from several resource giants, the bottom is likely in... And for many of these stocks, a boom will follow.
 
Good investing,
 
Matt Badiali




Further Reading:

Matt says China needs vast amounts of energy to keep growing. And its rising demand for one natural resource "could easily return 100% or more over the next 12-24 months." Get all the details here: My Top Commodity Trade Today.
 
"Finding assets that have been hammered for some reason... be it a natural disaster, a broad market selloff, or a long industry downturn... buying them after the market has bottomed, and making tremendous returns when a bit of normalcy returns to the market... is the single greatest trading strategy on the planet," Brian Hunt writes. Learn how you can spot these setups – and make massive returns – here.

In The Daily Crux
Market Notes
Silver miners are working on an uptrend... Pan American Silver and Silver Standard break out to three-month highs.
 
U.S. Steel hits a new 18-month high... up 90% from its summer lows.
 
Utilities are stuck in a downtrend... Southern, ConEd, and Exelon are all in negative territory over the past six months.
 
Gambling boom continues as Las Vegas Sands, Wynn Resorts, and MGM soar to new five-year highs.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1831.98 -0.9% +25.3%
Oil (USO) 34.23 -3.1% +1.2%
Gold (GLD) 118.00 +1.6% -27.7%
Silver (SLV) 19.23 +2.8% -35.7%
U.S. Dollar 80.57 +0.5% +1.0%
Euro 1.37 -0.4% +3.9%
Volatility (^VIX) 14.23 +3.7% -3.1%
Gold Stocks (^HUI) 205.31 +3.9% -54.4%
10-Year Yield 2.99 -1.3% +62.5%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 182.92 -1.0% +27.8%
Israel (ISL) 16.65 -1.3% +25.4%
Japan (EWJ) 11.94 -1.6% +20.9%
Taiwan (EWT) 14.05 -2.6% +3.6%
Russia (TRF) 14.96 -2.8% +2.0%
Canada (EWC) 28.96 -0.7% +1.7%
S. Korea (EWY) 61.64 -4.7% -3.8%
India (IFN) 19.56 -2.2% -4.6%
Singapore (EWS) 12.96 -1.6% -4.8%
China (FXI) 37.12 -3.3% -8.5%
S. Africa (EZA) 62.00 -3.9% -11.2%
Lat.America (ILF) 35.80 -3.4% -17.0%

Sector ETFs
Symbol Price
Change
52-Wk
Alt. Energy (PBW) 6.54 +2.4% +57.7%
Biotech (PBE) 37.02 -0.1% +57.4%
Media (PBS) 26.40 -0.9% +54.6%
Defense (PPA) 30.63 -1.3% +45.0%
Health Care (IYH) 115.89 -0.5% +37.9%
Consumer Svcs (IYC) 121.11 -0.2% +37.6%
Retail (PMR) 34.72 -0.5% +37.5%
Transportation (IYT) 130.08 -1.4% +35.9%
Industrials (IYJ) 99.97 -1.4% +34.8%
Big Tech (QQQQ) 87.27 -0.8% +31.4%
Financials (IYF) 79.72 -0.6% +29.2%
Software (PSJ) 35.88 -0.7% +28.5%
Semis (PSI) 18.57 -1.6% +25.3%
Construction (PKB) 22.13 -1.3% +24.5%
Telecom (IYZ) 29.42 -1.0% +22.4%
Water (PHO) 25.77 -1.7% +21.8%
Nanotech (PXN) 7.42 -0.9% +21.0%
Insurance (PIC) 19.01 +0.1% +18.3%
Basic Mat (IYM) 80.90 -0.7% +16.1%
Utilities (XLU) 37.39 -1.5% +9.3%
Real Estate (IYR) 62.98 -0.2% -0.6%

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