United States Natural Gas Fund - UNG
Natural Gas has been one of the hardest hit areas of the market, getting beaten down even worse than oil, losing 80% of its value since July 2008. Earlier this week, natural gas futures hit their highest point in 3 months, indicating a recovery is in the works. Since hitting a new 52-week low of of under $13 just last month, United States Natural Gas Fund (UNG) has rallied over 30%. Pete Najarian of OptionsMonster reports that recent options activity indicates that some serious money is betting on UNG moving up at least 20% in a few months. One might make the inventory argument, but much like oil, this argument is overblown and high inventories still don't justify such low prices. I recommend owning UNG if you want to participate in natural gas without exposure to specific company.
United States Oil Fund - USO
I have been recommending buying oil now since the start of this year. In fact, United States Oil Fund (USO) made it it to the first part of my three-part series on Top Stocks to Buy in 2009. Now with oil having recovered from its lows below $40 to just over $60, and prices increasing at the pump for a twentieth consecutive time this week, people are finally beginning to realize that this commodity has been oversold. I believe USO is the safest way for bulls to make a long-term bet on oil. In fact, the health of our financial markets depend on oil prices being moderately high, considering Energy makes up 13% of the S&P 500 index.
Market Vectors AgriBusiness ETF - MOO
Stocks like Mosaic (MOS), Potash, Monsanto (MON), Archer Daniels (ADM) and Syngenta (SYT) each contribute 8% to the Market Vectors AgriBusiness (MOO). The agriculture sector has been beaten down as if demand for food and agriculture have completely vanished. Potash at $240 early last year, was still priced at 20 times earnings and was growing triple digit. Granted that the demand weakened somewhat, but not enough to justify a 75% wipeout of the stocks market cap. Similarly, stocks like Mosaic which was reduced by 87% from June to Nov and Monsanto which went down 50% during the same period are all stocks with strong earnings and a global story. If you can't decide which of these individual stocks to buy, MOO will get you in all of them. Back in Nov last year, MOO dipped to $20 from its high of $65 in June. Since then, it has recovered nicely to the current level of $35, where it sits still 46% below its summer high.
PowerShares Water Resources - PHO
It is no secret that despite its abundance, water is a scarce commodity. It is surprising then, that our our commodity focus remains to be either Oil or Gold for the most part. In September 2006, I penned a lengthy piece on Water titled "Water is Thicker Than Oil", which outlined why it is such a scarce resource and the effects of lack of clean water. One ETF that I recommended back then and still do, that revolves around water and includes companies that provide infrastructure services to preserve or treat water, is PowerShares Water Resources (PHO). Unlike some of the other ETFs here, PHO is a lazy ETF, in that it has not shown the high volatility that we are now accustomed to. From a beak of $22.50, it fell 50% to just above $10 in March and sits currently at $14. Some of the bigger names in the ETF includeTetra Tech (TTEK), Veolia (VE) and Danaher (DHR), all stocks that are heavily vested in water. A few years ago, I highlighted this as a must own ETF but it has not performed to my expectations. Then again, bulls haven't really been rewarded much over the last 18 months. Regardless, for a scarce commodity, water does not get its due but when it does, this ETF should be a part of your portfolio.
Financial Select Sector - XLF
I have said in the past that an investor should stay away from bank stocks and financials - stocks that we don't understand. And I stand by that. But it is one thing not to own Bank of America (BAC) and it is another not to own a basket of financial stocks, for while we trust that the American financial system will survive this fall, we don't know which banks to trust individually. The Financial Select Sector (XLF) includes those that still hold some respectability in the eyes of the people, stocks like JP Morgan Chase (JPM), Goldman Sachs (GS), US Bancorp (USB), CME Group (CME) and MetLife (MET), but it also includes some of the fallen angels like Bank of America and Morgan Stanley. For risk averse investors who want to participate in the financials' rally (and how), XLF is a safer bet than playing any of the bad boys in S&P's Financial sector.