2 Commodity Stocks to Buy on the Dip

05/05/2014 7:00 am EST


With geopolitical turmoil again dominating headlines, the staff at Commodity HQ offers attractive opportunities in two commodity stocks.

Major equity indexes climbed higher this past week thanks to some encouraging economic data releases at home. Investors welcomed a 3.4% improvement in pending home sales over the past month, better-than-expected ADP employment data on Wednesday, and upbeat ISM manufacturing data on Thursday. Overseas, tensions between Ukraine and Russia remain at center stage, and as such, the lack of major developments left the doors open for buyers.

Given the recent rebound in the stock market following the steep pullback in early April, many are using any dips along the way to favorably position themselves as the bull train resumes its course. As such, below we take a look at two commodity stocks that are trending higher, but are still lagging behind broad-based equity benchmarks, thereby offering an attractive opportunity to “buy on the dip” in the near future.

The stocks included here are rated as “buy” candidates for three reasons: First and foremost, each of these companies boasts a market cap upwards of $1 billion along with average daily trading volumes topping the 1 million mark, in an effort to weed out smaller, more volatile, trading prospects. Second, these securities are trading above their 200-day moving averages, thereby implying they are in longer-term uptrends. Thirdly, these stocks are also trading below their five-day moving averages, which makes them attractive for swing traders looking to buy in before they rebound. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

Cameco Corp. (CCJ)
Consider CCJ’s one-year daily performance chart below:

Click to Enlarge

This stock has been climbing higher along an upward-sloping support line (red) since shares bottomed out above $17 in mid-October of last year. Recently, this stock endured a steep sell-off after peaking at $25.84 a share; since then, CCJ has come down to support at its 200-day moving average (yellow line), which it has previously managed to rebound off, as seen in early January and early February of 2014. Assuming CCJ holds above this support level, we feel that a rebound is in order, although traders may wish to set a stop-loss at or above $20 a share to protect themselves in case of another round of selling.

Methanex (MEOH)
Consider MEOH’s one-year daily performance chart below.

Click to Enlarge

This stock has been steadily climbing higher over the past year within an upward-sloping trading channel (red line). Recently, MEOH endured a pullback after shares peaked at $73.43 in early March of this year; since the decline, this stock has managed to hold above $60 a share, which is a support level that coincides with the lower boundary of its longer-term trading channel. Furthermore, this stock has a tendency to resume its uptrend after it nears its 200-day moving average (yellow line), as seen in early July and late August of 2013 as well as at the end of January this year. We would advise that traders utilize a stop-loss around $58 a share in order to protect themselves in case profit taking pressures persist over the coming days.

Disclosure: No positions at time of writing

By the Staff at Commodity HQ

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