JPMorgan: Commodities could see 'another 30% to 40% upside' from here — 3 simple ways to take advantage

Chasing after red-hot assets might seem like a risky move, but according to JPMorgan, the commodities sector could get even hotter. The bank says that although investors have warmed up to the asset class, they aren’t exactly heavily exposed to commodities just yet.

“In the current juncture, where the need for inflation hedges is more elevated, it is conceivable to see longer-term commodity allocations eventually rising above 1% of total financial assets globally,” JPMorgan analysts write.

They argue that a higher allocation to the sector implies “another 30% to 40% upside for commodities from here.”

With that in mind, let’s take a look at three commodity-related stocks in which JPMorgan sees substantial upside ahead.

Exxon Mobil (XOM)

The stock market is experiencing a pullback in 2022, with the S&P 500 tumbling by more than 7%. But investors of Exxon Mobil aren’t complaining: Year to date, shares of the oil and gas supermajor have surged nearly 35%.

Exxon is posting impressive numbers thanks to rallying oil prices.

In Q4 of 2021, revenue rose 83% year over year to $85 billion. For the full year, Exxon generated operating cash flow of $48 billion during the year — the highest amount since 2012.

Management is returning cash to investors, too. The company pays a quarterly dividend of 88 cents per share, translating to a still-attractive yield of 4.2%. It also started buying back its shares in Q1 as part of a $10 billion share repurchase program.

There could be more gains ahead. Last month, JPMorgan analyst Phil Gresh reiterated an ‘overweight’ rating on Exxon and raised his price target to $100 per share. That implies potential upside of close to 20%.

Cleveland-Cliffs (CLF)

Oil isn’t the only commodity that has received renewed investor attention because of the Russia-Ukraine crisis. Steel prices, for instance, are up roughly 7% year to date.

“Russia’s invasion a month ago nearly instantly set off a butterfly effect across the steel markets,” says JPMorgan analyst Michael Glick.

JPMorgan’s top pick in the steel sector is Cleveland-Cliffs, the largest flat-rolled steel producer in North America. The company also happens to be the largest manufacturer of iron ore pellets in North America.