Legendary Investor Stan Druckenmiller Is Increasing Commodity Exposure: Here’s Why You Should Too

Stan Druckenmiller is known for decades of 30% average returns, and recent disclosures show he is adding exposure to Barrick Gold Corp. (TSX:ABX)(NYSE:ABX), Potash Corporation of Saskatchewan Inc. (TSX:POT)(NYSE:POT), and Agrium Inc. (TSX:AGU)(NYSE:AGU).

| More on:

If the investing community’s track record is ultimately the only thing that matters, and Stan Druckenmiller has one (since 1986, he has averaged returns of 30%) without posting a single down year (he returned 11% during the market meltdown in 2008). Druckenmiller closed down his $12 billion fund, Duquesne Capital Management, in 2010 and currently manages his own fortune via Duquesne Family Office.

With Druckenmiller’s track record, it is wise to watch his moves, and recent disclosures from Duquesne Family Office indicate that Druckenmiller has taken positions in several Canadian names, and these names are largely in the commodity space. Specifically, Druckenmiller has increased his exposure to gold, agriculture, and oil via oil services firm Halliburton Inc.

On the agriculture front, Druckenmiller initiated positions (about 2% of his portfolio each) in both Potash Corporation of Saskatchewan Inc. (TSX:POT)(NYSE:POT) and Agrium Inc. (TSX:AGU)(NYSE:AGU). He also added exposure to other U.S.-based agriculture-based names, indicating a bullishness on the sector as a whole.

Druckenmiller also increased his exposure to gold and currently owns a fairly large position in Barrick Gold Corp. (TSX:ABX)(NYSE:ABX), which is his seventh-largest position (his fifth-largest position is in gold miner Freeport-McMoRan Inc., which he just added).

Here’s why Druckenmiller is likely bullish on these commodity sectors

Gold

Druckenmiller fairly clearly laid out the case for gold during a presentation at the Sohn Conference in May. Citing the proliferation of negative interest rates around the world (giving gold a positive carry), as well as the fact that stocks were trading at 18 times earnings despite declining margins, productivity, and near-record levels of corporate debt, Druckenmiller stated that he sees gold as a currency and the ideal asset for the current market.

Druckenmiller’s bullishness on gold is well founded. A few key factors move gold prices, but according to a recent report by National Bank, the two main factors are volatility and interest rates (with the U.S. dollar and inflation being the others). When volatility spikes, gold prices typically spike, and when interest rates fall, gold typically rises.

Volatility simply refers to the degree in which stock prices move, and dramatic swings imply high volatility. With the S&P 500 essentially sitting still for 40 days and volatility falling to record lows, the S&P broke the spell last Friday by plunging 2% in a day. Downward-moving markets result in higher volatility, and there seems to be more pressure to the downside than to the upside.

Currently, U.S. stocks are trading in the 84th percentile of their historical value (higher than 84% of the time), and this is despite the fact that that U.S. GDP growth estimates for 2016 are the lowest they’ve been since the crisis and have been revised down steadily since 2014. At the same time, S&P 500 companies are set to see their earnings decline for the fourth straight quarter.

Druckenmiller is fairly bearish on stocks and thinks a bearish turn in the market combined with low interest rates should improve gold names. Barrick is an excellent way to gain exposure, and the company is significantly de-leveraging its balance sheet with a clear plan to reduce debt from US$9 billion currently to US$5 billion in 2017.

Agriculture

Druckenmiller also initiated positions in several major agriculture names—a contrarian move given the fact that mid-west potash prices are currently trading at less than half of their average between 2010 and 2014, and corn prices for August 2016 were trading at only 54% of their 2010-2014 average.

Farmer incomes are also the lowest they’ve been since 2009. Despite this, a growing global population and the need for more crops per acre makes this sector attractive, and both Potash Corp. and Agrium are trading at reasonable valuations compared to the overall market.

With Agrium and Potash Corp. in the midst of merger talks, both Agrium and Potash Corp. shareholders stand to benefit from a combined entity that will not only have more leverage to a recovery (with more production capacity and more ability to control costs), but also better diversification and more control over global pricing.

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 Metals and Mining Stocks

construction workers talk on the job site
Metals and Mining Stocks

2 No-Brainer Mining Stocks to Buy With $200 Right Now

You can buy these top Canadian mining stocks with just a $200 investment right now to start your long-term wealth…

Read more »

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

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

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »