Market Insights

Inflation is a hot topic after consumer prices jumped yesterday. However several companies that could benefit from the trend are still down big.

Producers of metals like gold, copper, steel, iron ore and silver remain below their recent highs. Others are near their 52-week highs but remain well below longer-term peaks. (See table below.)

At least two major forces explain the disparity. One was the slowdown in China that hammered metal iron ore prices in August and September. Another was a sharp rally in the U.S. dollar as traders looked for the Federal Reserve to reduce monetary stimulus.

The last week of price action in the market suggests the pendulum may be swinging in the opposite direction as those trends fade. Continued gains in energy prices, plus supply shortages across the economy, have also contributed.

One big development yesterday was the jump in copper futures (@HG) despite a lack of news. That could indicate simple supply/demand forces are drawing prices higher. Freeport-McMoRan (FCX) and Southern Copper (SCCO) could potentially benefit from continued upside in the red metal. Canadian copper producer Teck Resources (TECK) is already near its highs.

Metal Stocks

There are other producers outside the U.S. BHP Billiton (BHP), Vale (VALE) and Rio Tinto (RIO) are global giants extracting a mix of iron ore, copper, coal and other base materials. They fell especially hard over the summer. Arcelor Mittal (MT), a giant European steelmaker, is also rebounding from a pullback. Brazilian companies Gerdau (GGB) and Compania Siderurgica (SID) are also down sharply.

U.S. producers that have pulled back include U.S. Steel (X), Cleveland-Cliffs (CLF), Nucor (NUE) and Steel Dynamics (STLD). Aluminum giant Alcoa (AA) has remained near its highs.

Precious metals have also declined since June. Gold and silver miners have rallied about 10 percent in the last two weeks but are still in negative territory on a year-to-date basis. Some of the most active symbols include the Market Vectors Gold Miners ETF (GDX), Barrick Gold (GOLD), Newmont Mining (NEM) and First Majestic Silver (AG). Silver, in particular, could interest some investors because of its use in solar energy and electronics.

Lumber, Uranium, Fertilizer

Lumber is another potential theme. Wood prices have been on the rise again in the past month after a dramatic spring time rally and jarring summer selloff. Louisiana Pacific (LPX), Weyerhaeuser (WY) and Boise Cascade (BCC) are some potential names.

Uranium has also been rising as countries like China and India face power shortages. Cameco (CCJ), the main stock following uranium, is pushing its highest levels in about a decade.

Fertilizer is another industry with pricing power. The big movers so far have been CF Industries (CF), Mosaic (MOS) and Intrepid Potash (IPI). Investors may want to watch Chilean producer Sociedad Quimica y Minera (SQM) as well.

Fossil Fuel Breakout?

Oil and gas stocks remain the biggest beneficiary so far of the inflationary trend. We’re considering them last because they’ve moved the most — unlike the stocks listed above. Still, it could be important to note that the SPDR Energy ETF (XLE) is trying to break roughly $56. That was a key support level before the pandemic that’s presented stiff resistance since. A move through this price zone could potentially draw more interest.

In conclusion, inflation doesn’t seem to be going away. This could weigh on some parts of the stock market, especially the higher-multiple growth names that have led in recent years. However other companies may benefit, including many that have lagged for the past decade.