Buying the underlying commodity is a valid alternative, but if your holding with the view of receiving a passive dividend of somekind, then owning stock in the commodity producing company achieves that goal.
Yes, i agree. OK, i have more time now to be specific, though i want to emphasize that i do own these stocks so i am not unbiased. I'm not making a recommendation, jusy stating why i own these two particular stocks. One is Statoil (STO). The old Norsk Hydro oil and aluminum conglomerate was broken up a few years back and the State controlled Statoil took over the oil part of Norsk and kept the name Statoil, and the Aluminum and hydroelectric power part of Norsk, kept the name Norsk Hydro (NHYDY). So two independent companies were the result of the breakup. (NHYDY is over OTC) I had the Old Norskhydro before the breakup and i have both stocks now. Norway has no net debt! The Krone is strong and will remain so. Though they issue bonds it is only for buffering and the Government could pay off all Government debt tomorrow if they needed to! (Contrast that with the situation in the US.) Statoil is the world's leader in deep water drilling technology. They were hurt awhile back because analysts were saying that they were low on reserves. In my opinion, they have the technology to expand their reserves as needed. They pay a juicy dividend. As a matter of fact they paid about a buck a share just this morning. That's about 5 %! Norsk Hydro is in the Aluminum and hydro electric power business. That's a perfect combination! because Aluminum is obtained by electrolysis of bauxite and takes a huge amount of power to produce. What better place to produce hydroelectric power than Norway! They sell their excess power, so they are also a utility company. You get nice built in diversification with Norsk Hydro. Just as Statoil does, Norsk Hydro also pays a very juicy dividend. OK, there's two that i like, and there are others of course.
DO NOT . . . I REPEAT, DO NOT invest in commodity based ETF's like the UNG or USO as they "roll" from one futures contract to another. During the CONTANGO aspect of the futures market ( in which future months are higher than the front month ) the very nature of the "roll" costs you a lot of money. Additionally, they publish the dates of the "roll" and the trading community is able to "front-run" this every month. There are a lot of articles recently (ie. Seeking Alpha ) on this issue. http://www.thestreet.com/_yahoo/sto...backs.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA Buyer Beware!
Commodities should begin their next rally tomorrow of Friday. Gold has already pulled back nicely, so now's the time to buy. I'm waiting for break out entries on GOLD, GG, ABX, UNG, and USO. The time for pullbacks is over, well, you never know.