10 Stocks to Buy in the Commodity Supercycle

Jun 1, 2022

Brijesh Bhatia, Research analyst

There is no shortage of people who will tell you the commodity rally is over.

But I have a different view.

The charts tell me the rally will continue and commodity stocks will benefit.

In this video, I'll show you why and share the list of my top 10 commodity stocks.

Hello viewers. Welcome to the Fast Profits Daily. Myself Brijesh Bhatia.

Commodity rally has been on a roll. And if and if you remember, I have done a video on commodities, which is Thomson Reuters CRB Commodity Index, which is tracked globally for the commodities rally. And if you remember, I have said that commodities super cycle is still there and probably may last for another 6 to 12 months.

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This dip into the commodity basket can be an opportunity to go long, though there can be a reason of inflation being hit with the rising commodity prices. But if I look at the charts, they are not indicating that the cycle is coming to an end. In fact, we are into the middle of the cycle and the momentum could continue.

Let's start with the CRB, Thomson Reuters Commodity Index chart first.

 

This is the monthly chart of CRB Thomson Reuters Commodity Index, and if you look at first on your left-hand side, where we broke out of 68 months of consolidation, and we have seen right from 2001-2002 rally for next for five years and the rally has been very, very on a one-way momentum.

Similarly, back in 2021 we broke again a 67-month consolidation zone and as it is said in technical analysis, history repeats itself, and this is a clear example of history repeating itself being a 67-month breakout.

Similarly, the history is repeating, and the momentum is continuing into the Thomson Reuters CRB Commodity Index, which is very, very bullish and it has hit the 52-week high, I would say probably 5-6 years of high. I guess this was somewhere, I don't remember exactly, but I guess 2013 or 2014, where the 320 levels were there on the commodity index.

So again the bullish scenario is very, very strong. If I look at the constituents, sector-wise and the weightage, on the CRB Commodity Index, agriculture, holds the highest with 41% weightage, followed by the 39% in the energy basket. Precious metals holds around 7% and the base metals or industrial metals holds around 13%.

It I break it up the commodities in the CRB commodity index, there are 19 commodities altogether, starting with aluminium, cocoa, coffee, copper, corn, cotton, gasoline, soyabean, silver, sugar, nickel NG, which is natural gas, live cattle, lean hogs, heating oil, gold, crude oil, and orange juice.

So these are the 19 commodities which constitutes the index. If I look at the technical structure, again as I said, it is very, very bullish, and if you look at the recent rally, it has been very, very fast and furious.

I still believe this rally could continue towards the higher level into the commodity space and supercycle is not yet over.

Let's look at some of the commodity's chart. What are they indicating? So let's start with the first soyabean over here.

 

If you look at the soyabean, though it has been consolidating for quite a few weeks, for quite a few months, but it is consolidating at the higher levels. Post the breakout the consolidation is at higher levels, which means that still the bullish scenario is there. We haven't seen the rally and the downwards momentum.

So after the rally, the consolidation means a breather into the momentum and again, as I said, 41% is agri weightage and soya holds more weightage in the agri basket. So yes, this chart looks very, very promising.

 

The second commodity is sugar into the agri space. Look at the chart. Similar lines with what the soyabean was indicating. Price is trending at the higher level. It's consolidating since Q4 2021. The rally has been on a halt of which is now nearly six months. But still, if you look at the consolidation, it's very, very at the higher levels, indicating that the momentum could resume into the sugar space.

 

Next is the coffee. Again we have seen a huge rally from US$ 170-180 on the coffee futures towards US$ 265-270. It came back to re-test the breakout level at around US$ 200, and still the prices are sloping up. If you look at the recent momentum, the slope is trending up, the momentum is trending on bullish side. So coffee seems very, very attractive commodity over here.

Coming onto the energy, which holds around 39% weightage in the basket. Let's start with the crude oil over here.

 

We have seen a stellar rally right from around US$ 60-65 to US$ 120-125 and those who are there in commodities between 2005-2008, they have seen US$ 140 in crude oil as well. As I was there in commodities in 2006-2007, I still remember the rally which was there into the crude oil.

The memory, the recent rally took me back to memory lane when it was trending very, very bullish. So yes, after a rally right from around US$ 60-65 to US$ 125, it has been consolidating for quite a few weeks now.

Again, I would wait for a momentum, but if you look at the slope, it's still trending higher. So let's wait for the momentum to break above US$ 125 or it might consolidate in a range.

But natural gas which again holds a good weightage in the CRB commodity index, is trending very, very bullish.

 

Now if you look at the chart over here, it broke out of the multiple resistance zone and now heading very, very higher. The momentum is still very, very stronger and remember. this is one of the most volatile commodity or in the energy space, you can look at.

But yes, the trend is very very bullish, which could add fuel to the CRB commodity index.

Coming onto the base metals or industrial metals which hold around 13% weightage, let's start with the copper over here.

 

If you look at the copper chart, after a rally, it came back towards the support zone of around US$ 4. But still, it is forming a higher high, higher low structure. The support area is acting good for bulls. The momentum has been coming back on the positive side.

So yes, till US$ 4 is not breached. I think copper would continue to stay higher and we might not see the fast rally which had happened, but there could be a slow upside momentum into the copper space.

 

Aluminium. The next commodity. Though it corrected from I guess US$ 4,100-4,200 back to the US$ US$ 2,800, so nearly 30% downtick we have seen in aluminium prices, but still the previous low which is around US$ 2,400-2,500 is holding very, very strong.

So till those levels are not breached, it would continue with the higher high higher low structure as of now from a broader space. So still, copper and aluminium both charts are indicating the bullish buyers.

Moving on to the billion space or precious metals. I would like to highlight the gold over here.

 

After a rally, though it has been consolidating for quite long now between US$ 1,650 on the downside to US$ 2,100 on the upside, it been consolidating for quite a few weeks now, or a few months now. but I still believe the momentum is very, very bullish to the gold space.

Gold being a slow mover, it could continue to remain in a range for some time and there could be a rally for around 4-5 months post the consolidation. So yes, gold I am very, very bullish and I've done a video on gold as well. In case you have missed it, go to our archive or the Equitymaster YouTube channel and a watch that video as well.

How you could benefit as an equity investor. How could you benefit from this?

Stocks List
Tata Steel ONGC
Hindalco Oil India
Hind Zinc GAIL
Tata Consumer Godrej Agrovet
Dwarkesh Guj Gas

So I'm just highlighted the 10 stocks, where I think the momentum is very, very stronger over year. And if you look at the stock list over here, starting with metals. Tata Steel, Hindalco, Hind Zinc, I think are very very bullish. These are three in metals space which you can look at.

On the coffee space, you can look at a Tata Consumer, or probably Tata Coffee in whatever you think the structure is very very bullish, you can look at.

The oil basket. ONGC, Oil India, and GAIL are very, very stronger looking into the oil space.

Sugar, I think from the whole basket, Dwarkesh Sugar seems to be a very, very exciting chart though it has been taking support, right at around Rs 100 and is still trending bullish. So Dwarkesh Sugar is one stock into the sugar space you can look at.

On to the other agri stocks, I think Godrej Agrovet could be the better stock into this space you should look at and the last one is the Gujarat Gas in the natural gas space. Seems to be a very, very exciting stock for an investor.

So these are the 10 stocks. As an investor, if you should keep a watch on them. Looking at the commodities supercycle I still believe in the CRB Thompson Reuters, the bullish momentum could continue in this index and in commodities, the momentum could be very, very bullish.

Signing off, Brijesh Bhatia.

Warm regards,

Brijesh Bhatia
Brijesh Bhatia
Research Analyst, Fast Profit Report
Equitymaster Agora Research Private Limited (Research Analyst)

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