As we noted in our main piece this week, we believe it’s very important for investors to revisit their commodity allocation now, while rising inflation is still in early innings.
We’re cautious on some commodities that have run recently, such as copper and iron ore, and while we still like them, we would look for a better entry point. Other commodities are more attractive, including those mentioned above — silver, rare earths, lithium, base metals, materials, natural gas, and food grains — as well as gold, platinum and palladium.
In equities, we favor companies exposed to commodity themes. Broadly, as capital expenditures show signs of ramping, we like the beneficiaries of increased capex, materials producers, transportation companies, and suppliers to companies benefitting from capital spending. We also continue to like many of the themes we have liked for the past year, focused on technology (especially productivity-enhancing software, artificial intelligence, cybersecurity, networking, and decarbonization). However, in this period of building inflation pressure, it is becoming ever more important to pay attention to valuation. We suggest that equity investors look for companies in the themes we have identified, but focus on ones with “GARPy” characteristics. That is, they have both growth and a reasonable price: companies that can grow, and whose growth can outstrip inflation, but which sport a reasonable valuation. There are many candidates and as usual we emphasize, “buy the dips.”
Thanks for listening; we welcome your calls and questions.
