What are the implications for investors? All of this leaves the commodity producers as a more interesting opportunity than the physical commodities. For investors with a longer-term view, say three to five years, some bargains are beginning to emerge.
However, investors need to exercise selectivity. While most commodity-related stock sectors are cheap, the plunge in valuations tends to track diminished fundamentals, i.e. falling earnings and profitability. This suggests that commodity prices may need to move even lower or, alternatively, fundamentals need to start improving, before commodity companies become a genuine bargain.
That said, I do see some relatively attractive valuations among U.S. drillers, U.S. refiners and U.S. metals and mining firms.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock. He is a regular contributor to The Blog.