Oil vs. Uranium vs. Fertilizer: Which Is the Best Commodity Play?

Energy stocks like Cenovus Energy Inc (TSX:CVE)(NYSE:CVE) are among the most popular commodity plays, but are they the best?

Key Points

Commodities are among the most widely traded assets in the world. The size of the commodity service market is US$5.059 trillion, and it grows bigger every year.

This year, the commodity sector is getting more attention than it’s gotten in past years. Earlier this year, Russia invaded Ukraine, which resulted in supply disruptions. For example, Europe’s power supply was challenged when Russia threatened to cut gas shipments. The oil and gas shortages led to very high prices. At one point this year, WTI crude — the kind of oil produced in the U.S. — traded for $123 per barrel, its highest price in years. Since then, crude oil prices have fallen to $95, which is relatively high but not unprecedented.

Still, the debate about commodities rages on. People have been very concerned about oil prices this year, and they may continue to be. On top of that, fertilizer prices have risen due to shortages and transportation bottlenecks. It’s a time of scarcity in much of the world. In this article, I will explore the question of which type of commodity is best for investors hoping to capitalize on this year’s commodity boom.

Safety helmets and gloves hang from a rack on a mining site.

Source: Getty Images

The case for oil

The case for oil is based on the fact that there is enormous demand for it worldwide. In 2021, the U.S. consumed about 20 million barrels of oil per day. Worldwide, the figure is greater. Many commodities are in demand, but few are consumed in such staggering quantities.

Another advantage of oil is that it is extremely well studied and understandable. Think about all the things you need to know to make an informed investment in Cenovus Energy (TSX: CVE)(NYSE: CVE). You would need to know about the company’s earnings and cash flows. On top of that, you would need to know about

  • Global oil prices;
  • Oil price trends;
  • The oil-gasoline price correlation; and
  • Macroeconomic factors in large countries like China and the U.S., which consume large amounts of oil.

All of these things are matters of public record. You can pretty much find all the information you need to analyze a stock like Cenovus Energy for free online. For less-liquid commodity markets, that’s not the case, as I’ll explore in the section on uranium.

The case for uranium

The case for uranium is based on the fact that it is thought to be the fuel of the future. Uranium is the fuel for nuclear energy, a kind of energy that produces no emissions. Its advocates say that it is a true form of green energy. Until recently, that was a controversial point, but a few weeks ago, the European Union voted that member states could market nuclear energy as “green.” This paved the way for increased nuclear adoption in Europe.

The downside here is that uranium isn’t anywhere near as well covered as oil is. Nuclear energy is huge, with 444 power plants worldwide. However, nuclear is so efficient that it’s a problem for investors: it doesn’t take all that much uranium to fuel a nuclear power plant. For this reason, there isn’t a cottage industry of uranium analysts and publications like there is for oil, making the commodity harder to analyze.

The case for fertilizer

Finally, we have fertilizer. You can invest in it via fertilizer stocks like Nutrien or through futures offered by CME Group. Fertilizer is going through a shortage this year, thanks to stressed supply chains. One benefit of fertilizer is that it doesn’t have many up-and-coming competitors challenging its position. Oil is being challenged by nuclear power, and fertilizer is still largely based on nitrogen, with no competing alternatives in the works. This makes fertilizer a relatively stable industry that’s not at risk of becoming obsolete.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Nutrien Ltd.

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