Trading commodities has been popular for many years, as investors can use a number of different resources to gain access to their favorite commodity investments. But only recently have commodities earned their keep in a long-term portfolio. Now, a small, but important, allocation to commodities is a necessity for proper diversification. These investments offer a number of advantages, such as hedging against inflation and maintaining low correlation levels to traditional asset classes.
As investors have begun to embrace commodities with a 5%-10% exposure in their basket of holdings, finding the best options has been something of a difficult task. Looking at a list of all the commodity options available can be quite overwhelming. For example, when it comes to futures contracts alone, investors have options ranging from natural gas all the way to butter. But because futures contracts are designed for active traders, most investors look to equities to establish a strong commodity position for their future.
For these investors, we outline the “top dogs”, the largest firms in some of the biggest and most popular commodity sectors in the equity world [for more commodity news and updates subscribe to our free newsletter].
When it comes to agricultural chemicals, there are a number of big names, but PotashCorp (POT) takes the cake. The company sports a market cap of $27.4 billion with an average daily volume of about 4 million. Potash is based in Saskatchewan, Canada and is the world’s largest potash producer, as well as the third largest producer of nitrogen and phosphate (three key elements in fertilizers). Overall, PotashCorp is the world’s largest fertilizer producer and supplies roughly 15% of the globe’s potash [see also Invest Like Jim Rogers With These Three Agriculture Stocks].
Aluminum is an extremely popular metal with a wide range of industrial uses, which makes it one of the most practical commodity investments. Alcoa (AA) is not only famous for kicking off earnings season every quarter, but also for being among the largest aluminum producers in the world. Stationed in Pittsburgh, Pennsylvania, Alcoa leads the globe in the production of primary aluminum and fabricated aluminum, and its products are used in everything from aircraft to automobiles. AA operates in 31 countries and has a strong market cap of $16 billion [see also Commodity ETFs: It Takes Two To Contango].
Copper is another major industrial metal, often used for plumbing and wiring. When it comes to copper production and mining, few companies have the clout that Freeport McMoran (FCX) has amassed. The company is one of the lowest cost copper producers in the world as well as one of the biggest. About 60% of their revenues are derived from copper-related activities while the remaining 30% comes from gold and molybdenum, so it is not a pure-play on copper. Headquartered in Phoenix, Arizona, Freeport is the largest publicly traded copper producer in the world.
Gold has become an investor favorite. Its price has shot through the roof in recent years, propelling it to new highs on what seems like a weekly basis. When it comes to gold mining, no one can match the size of Barrick Gold Corporation (ABX), a firm that has a current market cap of $14.5 billion and an ADV of 13 million shares. One of the largest gold miners in the world, Barrick is well known for its robust operations that span a number of countries. While gold is the main component of ABX, it is important to note that silver- and copper-related activities account for almost 12% of the company’s total revenues [see also Company Spotlight: Barrick Gold Corporation].
Timber is a necessary commodity for construction as well as a number of other purposes, though its heavy use has been met with environmental backlash in more recent years. Plum Creek Timber (PCL) is an investor favorite for gaining access to this sector. PCL has a market cap of $7.4 billion and roughly 500,000 shares trade each day. The company is the largest private landowner in the U.S., the majority of which is timberland, giving a strong outlook for this big-time player in the lumber space [see also Three Mining Companies With Robust Yields].
Master limited partnerships have been immensely popular due to their high yields that boost bottom-line returns in any portfolio. Though there are a number of viable options available, Kinder Morgan (KMI) is one of the biggest and best in the industry. Kinder is one of the leading pipeline operators in North America, operating approximately 84,000 miles of pipeline. To give you a reference point, the company’s total pipelines could stretch around the entire equator with roughly 1,000 miles left over for other projects. The company has a market cap of $92.9 billion and changes hands over 5 million times each day [see also Commodity Investing: Physical vs. Futures].
While metals can be broken down into a laundry list of types, as far as the overall industry is concerned, BHP Billiton (BHP) is by far the largest. With a market cap of $122 billion, BHP is not only the biggest metals conglomerate, but also one of the biggest companies in the world. BHP is consistently ranked in the Top 10 Producers lists. The company is headquartered in Melbourne, Australia, though it also has a major office in London, England.
Crude oil is another commodity that offers endless ways to make a play. This sector, however, focuses on companies that physically extract crude as well as explore new territories for other crude deposits. The Brazilian firm Petrobras (PBR) takes one of the top spots in this category, with a current market cap of $59.3 billion and over 50 million shares traded every day. PBR is one of the largest companies in the Southern Hemisphere by both revenue and market cap, as it puts out roughly 2.5 million barrels of oil each day [see also Ultimate Guide To RBOB Gasoline Investing].
Silver is the other safe haven investment. This precious metal is used just about as often as gold to hedge against shaky equities and inflation, but it also has a variety of industrial uses as well. Silver Wheaton (SLW) is one of the largest silver miners as well as the largest in silver streaming. A large portion of SLW’s business is routed through a Cayman Islands-based subsidiary, avoiding income tax and boosting bottom-line returns. The company has a current market cap of $7.3 billion and exchanges hands approximately 4 million times each day [see also Ultimate Guide To Silver Investing].
Steel is a mainstay industrial metal that is produced from iron and coal. When it comes to steel production, ArcelorMittal (MT) reigns supreme. MT is the largest steel producing company in the world and ranked 101st on the Fortune Global 500 list of 2014. The firm has a market cap of $20 billion while remaining a popular trading instrument; its average daily volume is around 4 million shares. The company is headquartered in Luxembourg and its operations span the globe.
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Disclosure: No positions at time of writing.