commodity

The rebounding global economy has pushed up commodity prices in recent months. But with the exception of gold, which has recently hit record highs, most commodities remain below their 2008 peaks. Still, resource demand should continue to improve with the global economy. Here are two profit-killing strategies to avoid when buying commodity investments. (We’ve also included our preferred approach, which you can read about below.) 1. Futures trading. Rising resource prices will likely tempt more investors to trade commodity futures. These include metals and minerals, fertilizers and agricultural products....

H.J. HEINZ CO., $42.42, New York symbol HNZ, rose 3% this week after it reported better-than-expected quarterly earnings and sales. The food maker also boosted its full-year outlook. Heinz earned $0.76 a share in its second quarter, which ended October 28, 2009. That’s down 11.6% from $0.86 a year earlier. However, if you exclude an $0.18-a-share foreign-currency hedging gain in the year-earlier quarter, its earnings per share would have risen by 11.8%. The latest earnings also beat the consensus estimate of $0.70 a share. Sales rose 2.5%, to $2.7 billion from $2.6 billion. Analysts were expecting $2.63 billion. Heinz is benefiting as the slow economy prompts more people to eat at home. The company is also making strong gains in emerging markets, including Mexico, India and Russia. That helped offset lower sales to restaurants in the U.S....

Warren Buffett’s Berkshire Hathaway Inc. recently announced that it will buy the 77% of U.S.-based railway Burlington Northern Santa Fe Corp. that it doesn’t already own. The company will pay $44 billion U.S. to complete the takeover. Burlington Northern owns one of the largest railroad networks in the U.S., with about 51,500 kilometres of track.

Berkshire’s not one of our favourite growth stock picks, but we agree with Buffett on railways

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Investors continue to look for ways to profit from rising commodity prices. Some are considering a unique kind of tax shelter: flow-through funds. Flow-through funds mainly invest in flow-through shares issued by junior mining and oil companies. The companies spend the money they receive for these shares on mineral exploration and development, which carries certain tax benefits, in the form of tax credits and tax deferral. These tax benefits “flow through” to investors in the fund. To take advantage of them, investors need to hang on to the funds for a fixed time, usually 18 months to two years. At the end of that period, flow-through funds convert into standard mutual funds. These tax shelters developed out of a Canadian government plan to encourage natural resource exploration and development....

Consumer stocks tend to add stability to a portfolio. That’s because these firms sell items, like food, that consumers must buy, regardless of the direction of the economy. General Mills is a top choice in the Consumer sector. The company has been cutting expenses and raising prices in response to higher ingredient costs. This should spur long-term earnings growth, especially now that commodity prices have fallen. Lower costs will also free up cash for expansion and dividends. Moreover, General Mills should benefit from its growing international presence, as some countries may well see a faster recovery (and corresponding rise in consumer spending) than others. GENERAL MILLS INC. $65 (New York symbol GIS; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 326.6 million; Market cap: $21.2 billion; Price-to-sales ratio: 1.5; WSSF Rating: Above Average) is the second-largest cereal maker in the U.S., after Kellogg. Its main brands include Cheerios, Wheaties, Lucky Charms, Total and Chex....

TENNANT CO. $29 earned $0.27 a share in the three months ended September 30, 2009. That’s down 52.6% from $0.57 a year earlier. These figures exclude tax-related gains and other unusual items. The cleaning-equipment maker continues to benefit from lower commodity costs. However, sales will likely remain weak until the economy is well on its way to a full recovery. Hold. TIM HORTONS INC. $29 has opened a new coffee-and-donut shop at the Fort Knox U.S. Army base in Kentucky. This is its first store on a U.S. base. The company has outlets on seven Canadian bases, and this new store should help it expand to more U.S. bases. Buy. LIMITED BRANDS INC. $17 expects to break even or lose up to $0.04 a share in its most recent quarter, which ends October 31, 2009. The clothing retailer had earlier predicted a loss of $0.07 to $0.12 a share. Limited Brands is opening fewer new stores, freezing salaries and cutting spending on advertising. These cost cuts are helping it offset slow sales growth. Buy.

Copper continues to attract a lot of attention from investors in commodity stocks. That’s because the metal has more than doubled in price, from a low of $1.25 U.S. in December 2008 to around $3.03 U.S. today. Traditionally, investors have bought copper as a way to profit from general economic growth. That’s because, unlike gold or silver, copper has a wide range of industrial uses. For example, it’s a key element in electrical wire and pipe.

Higher copper will brighten this commodity stock’s prospects

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Ag Growth International Inc., $32.05, symbol AFN on Toronto (Shares outstanding: 12.9 million; Market cap: $414.7 million), is a leading maker of portable and stationary grain-handling, storage and conditioning equipment. Ag Growth sells its products through 1,400 dealers and distributors in 48 states and nine provinces, as well as in overseas markets, including Russia and Kazakhstan. Ag Growth gets about 63% of its sales from the U.S., followed by Canada (32%) and overseas (5%). The company began as an income trust. It first sold units to the public at $10 each, and began trading on Toronto in May 2004. Last June, it converted to a conventional corporation and changed its name from Ag Growth Income Fund, symbol AFN.UN on Toronto, to the present form....

With commodity prices on an upswing, many investors have turned their attention to companies that produce and explore for minerals. These include Canadian gold stocks, especially in light of gold’s recent rise to over $1,030 U.S. an ounce. (In the current Stock Pickers Digest, we take a close look at a junior gold explorer we’ve recommended in the past. It has a presence in one of the world’s most productive gold-producing regions. What’s more, it’s up 72.2% for us since early this year. Read on for further details.)

Look beyond gold prices when investing in junior exploration firms

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Higher commodity prices and an improving global economy have caused many junior-resource stocks to rebound. Here are three penny stocks that have cash to sustain themselves, whichever way commodity prices go. We think they have a better-than-average chance of long-term success. MIRANDA GOLD $0.44 (Toronto symbol MAD; SI Rating: Start-up) (604-689-1659; www.mirandagold.com; Shares outstanding: 44.9 million; Market cap: $19.5 million) explores for gold, mainly in the Cortez Trend and Battle Mountain-Eureka regions of Nevada. Miranda has 13 properties in various stages of production in these areas, which are two of the world’s most productive gold belts. The company takes part in a number of joint ventures. These are crucial for junior-exploration firms, as they give them a way to fund further exploration on properties where they have already discovered minerals. The agreements also let juniors retain an interest in the properties without taking on debt or resorting to dilutive share issues....