Has the Next Commodities Super Cycle Arrived?

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Has the Next Commodities Super Cycle Arrived?

There is an important rotation happening in the US stock market right now that investors need to know about.

For the last few years, technology stocks have been one of the top performing sectors, leading the entire stock market higher.

The tech heavy NASDAQ 100 (QQQ) is up 50% in the last two years while the S&P 500 (SPY) is up 28%.

Big tech (Amazon, Google, Facebook, Apple) is still doing well in 2021 – however, tech IPO’s and mid and small size tech stocks have been getting hit pretty hard.

For example, online dating app Bumble (BMBL) went public in early March around $80 and today shares are down to $40 – a 50% decline in two months.

Affirm (AFRM) is a leading online payment systems company that went public in January around $90. Shares jumped to $140 before falling to $50 recently. This is a 65% decline from the 52-week high.

Coinbase (COIN) is one of the largest and most profitable crypto exchanges in the world. Shares went public last month around $400, hit $425 and then fell to $250 – down about 50% from the recent high.

Take a look at the chart below. Bumble, Affirm and Coinbase are all down sharply in the last two months.

*Chart from tradingview.com.

Bumble, Affirm and Coinbase are all excellent companies. These are industry leaders generating tens of billions in revenue per year.

So what’s the problem with shares?

These IPOs were priced with an extremely high valuation – that means a lot of future growth has already been priced into shares. For example, Coinbase is an awesome company – but shares going public at $400? That’s pricey.

Here’s how and why this is happening.

Wall Street is taking these tech companies public at ridiculous valuations for all the wrong reasons. The tech executives who started the company become billionaires, the bankers generate hundreds of millions in fees – and then retail investors are left holding the bag with losses based on these high valuations that made the other two groups rich.

Yes it’s all legal but I think its unethical — so its a reminder why its so valuable to be a skeptical investor and pay close attention to stock valuation.

Naturally – with this recent batch of tech IPOs struggling, investors are asking an important question.

This Undervalued Sector is Benefiting from Tech Outflows

With billions flowing out of technology stocks, where is that capital being re invested?

  • A sector that had been stuck in a bear market for over a decade.
  • A sector that is one of the most undervalued in the entire stock market.
  • A sector that appears to be moving back into a multi-year bull market.

The sector in question? Resource stocks – also known as energy, food and water.

Capital outflows from tech have been flowing directly into resource stocks – this group has been on fire in 2021. The Vanguard Materials Index (VAW) is up 25% in 2021 while the NASDAQ 100 (QQQ) is up 5%. Take a look at the chart below.

*chart from tradingview.com

Resource stocks are a segment of the stock market that feels long forgotten. Wall Street doesn’t talk about resource stocks much these days and it’s been a while since investors have been interested.

Well that is starting to change right now.

Resource stocks have historically traded in long-term cycles.For example, five years in a bull market, fives years in a bear market.

The last time we saw a bull market in resource stocks was from 2002 to 20010. During that period resource stocks – food and energy – were surging higher, outperforming the broader stock market.

That bull market in resource stocks and commodities ended in 2010 after the financial crisis – and ever since then, for the last decade, resource stocks have performed poorly because of slower global economic growth. Today, resource stocks and commodities are the most undervalued they have been in the last 50 years. Take a look at the valuation chart below – its a great visual of just how undervalued resource stocks and commodities are right now.

Now – it looks like resource stocks are exiting the 10-year bear market and entering a new, long-term bull market.

4 Powerful Factors Fueling Resource Stocks and Commodities

There are a few key reasons why resource stocks and commodities are quickly moving back into favor.

  • These stocks have been crushed in the last ten years and many have been trading at an all-time low.
  • Resource stocks are the most undervalued they have ever been and grossly undervalued compared to the broader stock market and particularly tech stocks.
  • With global governments pumping trillions into the financial system, inflation is accelerating and investors are looking to hedge that with physical assets.
  • Declining value of the US dollar.

Many analysts and investment banks are calling this the next “Commodities Super Cycle.”

Goldman proclaims the dawn of a new commodity Super cycle

Are We Witnessing the Start of a New Commodities Super cycle?

What Funds and Stocks Will Benefit the Most from a New Commodities Super Cycle?

Here is a quick run down of the stock and funds that I expect to benefit the most from a new commodities super cycle.

Food and Agriculture: Bunge (BG), The Anderson (ANDE), Archer Daniels Midland (ADM), Agco (AGCO).
Energy: Conoco Phillips (COP), Devon Energy (DVN), Cimerex Energy (XEC), Apache Corp (APA).
Commodity Funds: Vanguard Materials Index (VAW).

Here is the Plan Moving Forward

Continue to hold big tech:  Amazon, Google, Apple, Facebook.
Trim holdings in tech IPOs: Bumble, Unity Software.
Buy resource stocks or funds: Bunge, Agco, Conoco Phillips, Devon Energy.

I am in the process of contacting my clients on this trend.

Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.

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