3 Leading Commodity Stocks To Benefit From Russian Raw Materials Shortfall

  • Stock Market Analysis
  • Editor's Pick

The impact of Russia’s invasion into Ukraine, and the harsh economic sanctions imposed on Moscow by the U.S. and Western European allies, have become the main drivers of market sentiment in recent sessions. Global stocks have sold off sharply, while prices of commodities spiked to fresh highs as investors react to fears over a disruption to Russian supply of a wide range of raw materials.

Russia is a key producer of an array of commodities, such as oil , natural gas , palladium , aluminum , wheat , as well as potash and nitrogen. It is also one of the world’s largest exporters of energy, metals, and grains.

Indeed, the Invesco DB Commodity Index Tracking Fund (NYSE: DBC )—one of the sector’s main ETFs—has rallied around 35% year-to-date to reach its best level since February 2013. The S&P 500 , for its part, is down 12.5% over the same timeframe.

DBC Daily Chart

Below we highlight three raw material producers that are well worth considering as investors adjust their portfolios amid the rally in commodity prices due to worries over a potentially prolonged conflict in eastern Europe.

1. The Mosaic Company

  • P/E Ratio: 14.2
  • Market Cap: $21.4 Billion
  • Year-To-Date Performance: +48.1%

The Mosaic Company (NYSE: MOS ) is the largest U.S. producer of potash and phosphate fertilizer and one of the world’s leading fertilizer manufacturing and distribution companies. It has thrived in recent months thanks to a powerful combination of a booming farming economy and the ongoing surge in agricultural commodity prices.

MOS jumped to its best level since September 2011 at $64.71 on Monday, before pulling back to close Tuesday’s session at $58.19. At current levels, the Tampa, Florida-based fertilizer giant has a market cap of $21.4 billion.

Shares of Mosaic trade at a reasonable P/E ratio of 14.2 and have soared a whopping 48.1% in 2022, amid robust worldwide demand for its fertilizers given the rally in global commodity prices.

MOS Daily Chart

Russia, which produces more than 50 million tonnes a year of potash and phosphate fertilizers—or 13% of the global total—makes it the world’s second biggest fertilizer producer after Canada. It warned last week that it could suspend exports of fertilizers as tensions between Moscow and Western powers escalate over Vladimir Putin’s military operation in Ukraine.

As such, the Russian export ban would cut off a large portion of global supply from the market, prompting the world’s agricultural superpowers, which rely on imported fertilizer, to seek out new suppliers.

Taking that into account, MOS shares could see an increase of around 35% in the next 12 months, according to the InvestingPro model, bringing it closer to its fair value of $78.77 per share.

MOS Fair Value Chart

Source: InvestingPro

Honorable mentions: Nutrien (NYSE: NTR ), Corteva (NYSE: CTVA ), CF Industries (NYSE: CF )

2. Vale

  • P/E Ratio: 5.6
  • Market Cap: $96.1 Billion
  • Year-To-Date Performance: +41.3%

Vale (NYSE: VALE ) is the world’s largest producer of nickel , and iron ore . The miner also produces manganese, copper , bauxite, potash, and cobalt, while operating a large network of railroads, ships, and ports used to transport its products.

Shares of the Rio de Janeiro, Brazil-based company have soared this year, jumping roughly 41% so far in 2022, as surging base metal prices boosted investor sentiment on the raw materials producer.

VALE shares, which rose to a seven-month peak of $20.95 on Monday, closed at $19.82 last night. The stock trades at a relatively low price-to-earnings ratio of 5.6. With a market cap of $96.1 billion, Vale is one of the most valuable companies in Latin America.

VALE Daily Chart

Vale has reaped the benefits of the massive surge in the price of nickel as well as a wide range of other industrial metals.

Nickel futures soared above $100,000 for the first time in history this week amid a violent short squeeze sparked by worries over the possible absence of supplies from Russia—the third biggest nickel producing country in the world, accounting for 10% of global output.

The London Metal Exchange was even forced to halt trading in the metal due to the sharp moves.

Nickel Futures Chart

Nickel is primarily used by the auto and construction sectors for stainless steel, however, demand has soared in recent years due to its use as a battery metal in electric vehicles.

As the world’s leading nickel producer, Vale is well-positioned to profit from the elevated tensions between the U.S. and its NATO partners and Russia due to the worsening Ukraine crisis.

Indeed, the quantitative models in InvestingPro point to a gain of 60% in VALE shares from current levels over the next 12 months, bringing the stock closer to its fair value of $31.72.

VALE Fair Value Chart

Source: InvestingPro

Honorable mentions: BHP Group (NYSE: BHP ), Rio Tinto (NYSE: RIO ), Teck Resources (NYSE: TECK )

3. Bunge

  • P/E Ratio: 8.1
  • Market Cap: $15.1 Billion
  • Year-To-Date Performance: +13.9%

One of the world’s leading agribusiness and food companies, Bunge's (NYSE: BG ) core business involves purchasing, storing, transporting, processing, and selling of agricultural commodities and commodity products, primarily wheat, corn , and soybeans , as well as rapeseed , canola , and sunflower seeds.

As such, the ongoing rally in grains prices resulting from Moscow's invasion of Ukraine should bode well for the agriculture giant in the months ahead.

Wheat futures spiked to their highest level on record at the start of the week, while corn prices also rallied to multi-year peaks amid mounting fears over a disruption to global supplies. Russia and Ukraine combine to account for nearly 29% of global wheat exports, and 19% of corn exports.

US Wheat Futures Monthly Chart

Considering its leading position in the global grains industry, Bunge—which trades at a P/E ratio of just 8.1—appears as a good option for investors looking to hedge against further geopolitical uncertainty in the weeks ahead.

Bunge has seen its shares jump by approximately 14% since the start of the year, far outpacing the returns of both the Dow Jones Industrial Average and the S&P 500 over the same timeframe, amid a strong performance in the grains merchant’s core agricultural services and oilseeds unit.

BG Daily Chart

BG shares climbed to their strongest level since June 2008 at $112.61 on Monday, before retreating to end at $106.31 yesterday. At current levels, the St. Louis, Missouri-based grain and oilseeds processor has a market cap of $15.1 billion.

According to InvestingPro models, BG is undervalued at the moment and could see an upside of 29% over the next 12 months bringing the stock to its fair value of $137.10 per share.

BG Fair Value Chart

Source: InvestingPro

Honorable mentions: Archer-Daniels-Midland (NYSE: ADM ), Adecoagro (NYSE: AGRO ), CHS (NASDAQ: CHSCL ).

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