Tired Of Commodity Prices Wreaking Havoc With Your Portfolio?

Consider these options if you’ve had it with the volatility involved with this commodity producer.

| More on:
The Motley Fool

Investors in Teck Resources (TSX:TCK.B,NYSE:TCK) have had a rough couple of days as the stock declined by 7% on Thursday and is off to another “red” start today.  The tumble was triggered by a disappointing Q4 release.  The company struggled through much of 2012 primarily due to lower commodity prices, particularly for coal.

Double exposure

Investors in Teck, which is primarily a producer of coal, copper, and zinc face two significant risks – price risk and volume risk.  The price Teck can sell its commodities for and the amount it can produce have a large influence over the company’s results.  This formula works well in the good times, and not so well in the bad.

While prices, especially for coal, were not friendly to Teck in 2012, the company actually grew the amount of copper and coal that it produced.  Volumes were up.  Volume is a much more stable variable as once a mine goes into production, seldom will it stop.  If you’re tired of the price risk involved with an investment in Teck, yet want to remain exposed to volume, invest in the companies that transport Teck’s commodities.

Other ways to play

There are three main groups associated with moving Teck’s product.  Rail, ports, and ocean freight.  In Canada, we don’t really have any publicly traded ocean freight options so we’ll stick with the other two.  CP Rail (TSX:CP,NYSE:CP) is the primary carrier of Teck’s coal from its five southeast B.C. mines to the coast.  Even though commodity prices were down, Teck’s transport costs were actually 24% higher in the fourth quarter compared to a year ago.  Without CP, Teck’s coal goes nowhere, a dynamic not lost on CP’s management.

Before it heads out to sea, CP rail deposits much of Teck’s coal at Westshore Terminals (TSX:WTE).  Teck is Westshore’s #1 customer.  Although this port is at capacity and unable to expand due to geographic constraints, as long as there are commodities being shipped out of Canada, Westshore will be printing cash.  Limited downside and the stock pays a reasonable 3.8% yield.

The Foolish Bottom Line

Taking another angle can occasionally offer up a hidden gem that the market has not yet considered.  The next time you are researching a company, try to figure out its ecosystem (suppliers, customers, affiliates, etc.).  Chances are there are ways to gain a similar exposure to that company through its ecosystem that the rest of the market has yet to catch on to.  CP Rail and Westshore are, in my opinion, two well-known, fairly valued names, however, if you get into the habit of approaching a theme from several directions, you’re very likely to have some huge wins over time.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler does not own shares in any of the companies mentioned in this report at this time.  The Motley Fool has no positions in the stocks mentioned above.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

close-up photo of investor Warren Buffett

The Best Warren Buffett Stocks to Buy With $300 Right Now

An investing lessons by Warren Buffett was to buy the dip. The market is giving you buying opportunity with these…

Read more »

man sitting in front of 3 screens programming
Tech Stocks

2 Growth Stocks to Hold for the Next 10 Years

Are you interested in growth stocks? Here are two picks to hold for the next 10 years!

Read more »

Canadian Dollars
Dividend Stocks

Buy 734 Shares of This Top Dividend Stock for $9,574 a Year in Passive Income

Are you looking to earn regular income? Now is an opportune time to buy Dividend Aristocrats at discounts and accelerate…

Read more »

A plant grows from coins.
Dividend Stocks

This Ultra-High Yield Stock Just Hit a 52-Week Low, and it’s Still a Buy Today

Enbridge Inc (TSX:ENB) stock recently hit a 52-week low. Here's why.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 6% Dividend Stock Pays Cash Every Month

Are you looking to earn cash every month from October 15 onwards? This 6% dividend stock gives you monthly payouts.

Read more »

Person slides down a stair handrail
Dividend Stocks

With a 7.6% Dividend, This TSX Stock Is One to Buy Now and Hold for Decades

Now is an opportune time to invest in this no-brainer TSX stock and get +$30 extra dividend for decades on…

Read more »

A person builds a rock tower on a beach.
Energy Stocks

CPP Enhancement: Here’s How Much Your Benefits Could Increase

You may or may not receive higher CPP benefits thanks to CPP enhancement. You can receive passive income from Fortis…

Read more »

Portrait of woman having fun in the street.
Dividend Stocks

CPP Benefits Will Be Higher for Millennials and Gen Z

Older Canadians won't get enhanced CPP, but they may invest in dividend stocks like Royal Bank of Canada (TSX:RY).

Read more »