Commodities are on the rise early 2018. Which commodities are a buy in 2018, which ones to avoid? Particularly, as agriculture stocks have not been very hot last year, is it now a time to buy them?
The short answer: yes, agriculture stocks are worth considering in 2018.
We wrote about agriculture last year, and we are truly convinced that our observations were spot-on so they are still very valid according to us.
Agricultural commodities are represented by the GKX index which includes Wheat, Corn, Sugar, Soybean, Coffee, Cocoa, Cotton. If the agricultural commodities index performs well the agriculture stocks outperform, that’s the whole point.
The chart of the GKX index looks truly awesome. Exactly one year ago we already signaled a potential breakout in 3 Reasons Why Agricultural Commodities Could Start A New Bull Market In 2017. However, it was a false breakout and we signaled this to our readers in After A False Breakout, What’s Next For Agricultural Markets And Stocks?
We concluded “This is a classic case of a false breakout. Things looked quite bullish after the breakout though. Right now, the agricultural index is just 2 percent away from a major support area. The 280 level in GKX has held for +20 months. It is imperative for the sector to successfully overcome this test, otherwise agriculturals will go much lower in 2017.”
That is absolutely still a relevant conclusion. Throughout 2017 we have followed this sector closely, and observed that the agriculture index refused to break below 270 points. That is hugely bullish news, especially because the falling trendline is now about to get invalidated.
Agriculturals are consolidating for an unusually long period now: 2 years. A consolidation is nerve-wracking, and this is what we wrote about the subject last year:
Agricultural commodities are doing something that is nerve-wracking to most investors: trading within a range, and moving from support to resistance and back. What typically happens is that investors give up. Once there is no investment interest, and the majority of investors pay any attention anymore, smart investors step in and push them sharply higher in a very short period of time. Once that happens, the biggest gains are in the pockets of a small group of investors … which is when media and a larger group of investors start paying attention and taking long positions.
And we continued with this: “That is why patience, combined with strong analytical skills, are the most important skillset for an investor.”
We expect 2018 to be a very profitable year for agriculture commodity stocks. That is under the assumption and condition that the GKX index breaks out which is about to happen in the very near term. Watch 290 points in GKX, see below chart.
Which agriculture stocks to choose in 2018?
Very simple answer to this question: exactly the same ones we tipped 12 months ago with the following 2 as our top picks:
- Potash stock: Potash Corporation of Saskatchewan Inc. (POT) => symbol and name changed, currently Nutrien (NTR or NTR.TO)
- Agriculture stock: CF Industries Holding (CF)