The opportunities to be found in basic materials are many. The physical material is one opportunity while the choice of getting the physical material out of the ground is another. Companies that service a particular commodity are another way to invest while the companies that manufacture machinery to aide services and extraction is yet another. There are many ways to approach the sector with each being just as valid as the next. In deciding an approach, however, one needs to understand the dynamics attached to each.
In the basic materials sector, sometimes being closer to the end of the process is safer than being toward the beginning. There is more profit to be made toward the beginning of the process but, at the same time, there is more risk. A company toward the beginning of the process would be a company like Deer Equipment or Caterpillar (CAT). These companies manufacture the equipment that actually makes the extraction of the basic material resource possible. The equipment is costly and exposed to swings in the cost of money and the world economy. Other such companies, one step removed but within the same category, might include AK Steel or smaller oil and gas companies. Past the smaller oil and gas companies, this area is fairly safe for the long-term investor willing to ride variations in the market.
Enterra Energy Trust (ENT) is perhaps a solid energy play in this regard. The price of oil and gas are solid for the moment and the company has sizable holdings and a longer track record in the energy world. Stillwater Mining Co. (SWC) is perhaps a good option if one is interested in more exotic mineral investments within the platinum group. This company appears to have sizeable proven reserves of palladium and a good infrastructure to get them out of the ground in a quick fashion per/oz. If an investor is interested in the base metals of gold, silver and copper, they may also be interested in New Gold Inc. (NGD). This company is realistically priced for a small cap investor and operating in several internationally known natural resources areas. Each of these areas is on the up-swing at the moment and easily positioned to support a balanced portfolio. There are many opportunities within the sector to help in this regard with most being fairly safe investments in a time where balance is the key.
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