How to Profit From Rising Food And Energy Prices
The crisis in the Middle East has been literally fueling the markets, especially the energy sector as of late. We had already seen huge gains in not only oil prices but also food prices prior to the crisis and this trend should continue for quite some time. So the question I have been receiving lately is:
“How can we profit from a rise in food and energy prices?
That is a great question and one every investor should be asking in 2011.
First let’s look at food
As world foot prices have increased astronomically, having exposure to the food industry in your portfolio can both protect you against inflation and diversify your portfolio. We will look at two main ways to play the “rising food price” trend: buy investments with exposure to food prices and buy stocks of agriculture-related businesses.
- Rising food prices: If you want to play this trend, you can look at ETFs that hold a broad basket of commodities. You can look at one such as PowerShare’s DB Agriculture. (Ticker DBA). This fund tracks the Deutsche Bank Liquid Commodity Index–Diversified Agriculture Excess Return. This index is a benchmark that tracks futures contracts prices of feeder cattle, cocoa, coffee, corn, cotton, lean hogs, live cattle, soybeans, sugar, and wheat.
- Invest in businesses involved in agriculture. This involves a wide variety of opportunities. You can look at a company like John Deere & Company (ticker DE) that provides farming equipment to the food industry. Or you could look at fertilizer companies like Potash (ticker POT), Sociedad Quimica Y Minera De Chile SA ADR (ticker SQM), or Mosaic (ticker MOS). Or if you want a broad basket of companies involved in the agriculture business you can look at an ETF like MarketVectors Agribusiness (ticker MOO).
Now what about energy?
As oil prices head toward $100 a barrel, there are many ways to profit from rising prices. You can look at big oil companies, oil service stocks, and exchange traded funds with oil exposure to name a few. Let’s look at how to play this trend.
1. Invest in a commodity exchange- traded fund. Exchange traded funds for commodities are like index funds that track the price of one or more commodities. A couple of examples include tickers USO and OIL.
2. Look at top oilfield-services players such as Schlumberger Ltd. (NYSE: SLB), Halliburton Co. (NYSE: HAL), Baker Hughes Inc. (NYSE: BHI) or Helix Energy Solutions (HLX)
3. Look at energy market leaders like ExxonMobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX) and even the outcast, BP PLC (NYSE ADR: BP)
4. Look at alternative energy companies. As oil prices rise, generally companies in the alternative energy space like First Solar (ticker FSLR) or Cree Inc. (ticker CREE) also rise.
5. Look at oil transportation companies. These include companies that own pipelines (such as Constellation Energy in the United States) or oil tanker firms such as Frontline Ltd. and Nordic American Tankers (Bermuda).
6. Think outside the box. Look globally at companies like Petrobras or Petroleo Brasileiro (ticker PBR), a large integrated petroleum company operating in Brazil and other parts of South America. Or Chesapeake Energy (ticker CHK), the largest independent exploration and production company in the U.S., focused largely on building onshore natural-gas reserves. Or EnCana (ticker ECA), one of North America’s leading independent natural-gas explorers and producers. Or Arch Coal (ticker ACI), the nation’s second-largest coal producer.
As you can see, there are many ways to play these trends. At Faith-Based Investor, we are currently loading up on energy, gold, silver, food, and technology companies as we see the trend for higher prices continuing throughout 2011 and beyond.