5 Undervalued Commodity Stocks

Includes: AA, EGO, OAS, QEP, RIO
by: CommodityHQ

By Edmund John

After QE3 hit home, commodities markets rejoiced along with most other major asset classes. More money printing will likely lead to heavy inflation in the future, giving a nice outlook for a number of hard assets in the long term. But while a number of securities enjoyed a hefty boost from the Bernanke’s statement, some still lie under the radar. Below, we outline five commodity stocks that are underperforming but could wind up big winners by the time 2013 rolls around.

  1. Eldorado Gold (NYSE:EGO): When I put a buy sign on July 25, in my guide to gold, it was trading low – but when the investor report had a lot to like: the company is interested in buying new mines and expanding in emerging markets such as Romania, Brazil, Canada and others. I’m currently up 38.88% on that investment. The company represents a great buy and hold value investment and has a very promising future.
  2. Rio Tin (NYSE:RIO): This company is poised to do tremendously well if reports from their Indian diamond mine are accurate. The company took a beating during the financial crisis of ’09, but has since bounced back. The company mines iron ore in emerging markets and Australia. Iron ore is trading at a three-year low. We think this company has a ton of upside.
  3. Alcoa Inc (NYSE:AA): We like this aluminum stock that has been absolutely pounded for the year to date. With a ton of upside, this stock will not disappoint investors who are looking for a longer term buy and hold on a larger cap stock with strong fundamentals. The stock is underperforming and isn’t an obvious buy – but could be a long-term value play for a commodity investor.
  4. QEP Resources Inc (NYSE:QEP): QEP Resources, Inc. is a holding company. QEP operates in three lines of business: gas and oil exploration and production, midstream field services, and energy marketing. The company has recently announced its plans to purchase approximately 27,500 acres of land in the Bakken basin. This purchase highlights a new tendency in the area: an increase in the price per acre of land in the surrounding basin. Given the number of companies jockeying for position in the region, even more major moves seem imminent. QEP is one such candidate, potentially eyeing smaller companies in the area as potential for securing more land and more productive wells.
  5. Oasis Petroleum Inc. (NYSE:OAS): Oasis Petroleum Inc. is an independent exploration and production company focused on the development and acquisition of unconventional oil and natural gas resources in the Montana and North Dakota regions of the Williston Basin. As a result of QEP’s announcement to purchase over 25,000 acres in the Bakken Basin, analysts have begun sizing up other companies in the area for their potential to be purchased. OAS is one such company being considered by analysts. OAS has over 300,000 net acres in the Williston Basin, making it attractive to larger, international oil companies hoping to increase their visibility in the area, though it remains appealing to smaller companies focusing on the production of natural gas.

Disclosure: Long EGO.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

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