7 Best-Performing Commodity Stocks – NerdWallet

Commodities are, for the most part, necessities. And in tough economic times they can serve as a hedge against inflation in a well-diversified portfolio.

Commodities are basic goods, such as oil, wheat or cattle. Commodity stocks are shares of companies that operate in those spaces, such as oil refineries, wheat producers or meat-processing companies. Commodity stocks represent things people need, such as food and energy. This can potentially make them strong additions to an investment portfolio.

Here are the seven best-performing commodity stocks from Fidelity’s Global Commodity Stock Fund (FFGCX). This fund offers a good representation of several commodities-based industries, including the energy, metals and agricultural industries. This fund may include international as well as domestic stock.

Source: Finviz. Data is current as of Feb. 22, 2024 and is intended for informational purposes only.

There are several types of commodities out there. Here are a few examples:

The three main benefits of commodity stocks are hedging against inflation, diversifying your investment portfolio and potentially paying dividends.

Since commodity stock prices increase when the price of commodities increase, commodity stocks may work well to combat the effects of inflation. That’s particularly true if you’re getting close to retirement, already have other retirement-worthy investments such as bonds, Treasurys or money market funds, and want to protect your investment portfolio’s value. If you have a well-diversified portfolio to begin with, and you’re investing over a long period of time, you may benefit just as well (if not more) by focusing on stocks that have long-term growth potential.

Commodity stocks may increase your portfolio’s diversification because commodities are found in so many sectors. And since commodities are often necessities, it is less likely consumers will cut back spending in the commodities sectors when times are tough. This is in contrast to other areas that may be considered discretionary, such as travel or restaurants.

Some commodity stocks pay dividends, but not all do. The best dividend stocks don’t necessarily pay the highest dividends, but commodity companies with a history of paying reliable dividends and strong financial fundamentals may be worth investigating if you’re looking for commodities exposure.

One of the biggest cons of commodity stocks is that they are fairly reliant on political and climate events, and can be volatile as a result. For example, extreme weather creates risks for crops and livestock, and international affairs can have a significant impact on oil prices. The other risk of commodity stocks is exactly that: They’re individual stocks. Individual stocks harbor all the risks of the singular company they represent. Commodity exchange-traded funds, or ETFs, however, allow you to invest in lots of different commodity stocks at the same time. This can reduce your risk and increase your portfolio’s diversification.