Commodities prices are at their lowest in six weeks, reports Chanyaporn Chanjaroen of Bloomberg. Could this be a good time to buy? Or is it a sign that commodities have been too expensive and that prices will continue to fall?
Increases in perceived risk have caused commodities to rise sharply over the past year. Oil prices have skyrocketed due to turmoil in the Middle East and other economic risks. Investors have flocked to precious metals in a "flight to safety" from other riskier investments. Moreover, sovereign-debt problems, particularly in Greece, are causing people to fear a completely new slowdown.
"The major influence continues to be the European situation ... If you look at what happened to the oil price during the financial crisis you can see that these events have a big impact. There is this tone of a global slowing in the economy," Ben Westmore of Australia Bank Ltd. told Bloomberg.
Yet several fund managers are bullish on commodities in the long run. They foresee rising demand from the developing world, which will support higher prices, according to Jonathan Bloomberg of MarketWatch.
If you agree with their bullish long-term view and are looking for cheap commodity stocks, here is a list of stocks that appear undervalued according to their price to earnings growth (PEG) ratios.
The PEG ratio is a measure of how much investors are paying for annual earnings (EPS) growth.
PEG = (P/E)/(Annual EPS Growth)
When a company looks overvalued because of a high P/E, taking into account earnings growth can standardize the measure, giving a ratio that is more comparable across firms. PEG ratios above 1 are seen as overvalued, whereas PEG's below 1 appear undervalued.
Do you think these companies have upward potential? Use this list as a starting-off point for your own analysis of commodities companies. (Click here to access free, interactive tools to analyze these ideas.)
List sorted by PEG ratio.
1. Thompson Creek Metals Company (NYSE: TC): Industrial Metals & Minerals industry with a market cap of $1.57 billion. Its PEG ratio is 0.27
2. Cliffs Natural Resources (NYSE: CLF): Industrial Metals & Minerals industry with a market cap of $11.9 billion. Its PEG ratio is 0.30.
3. Holly Corporation (NYSE: HOC): Oil & Gas Refining & Marketing industry with a market cap of $3.34 billion. Its PEG ratio is 0.30.
4. EXCO Resources (NYSE: XCO): Independent Oil & Gas industry with a market cap of $3.98 billion. Its PEG ratio is 0.32.
5. China Petroleum & Chemical (NYSE: SNP): Independent Oil & Gas industry with a market cap of $81 billion. Its PEG ratio is 0.39.
6. Arch Coal (NYSE: ACI): Industrial Metals & Minerals industry with a market cap of $5.29 billion. Its PEG ratio is 0.42.
7. First Majestic Silver (NYSE: AG): Silver industry with a market cap of $1.55 billion. Its PEG ratio is 0.44.
8. Vale (Nasdaq: VALE): Steel & Iron industry with a market cap of $155.87 billion. Its PEG ratio is 0.45.
9. Goldcorp (NYSE: GG): Gold industry with a market cap of $37.11 billion. Its PEG ratio is 0.47.
10. Frontier Oil (NYSE: FTO): Oil & Gas Refining & Marketing industry with a market cap of $3.21 billion. Its PEG ratio is 0.48.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Andrew Dominguez does not own any of the shares mentioned above.
