Investors betting on a rebound in iron ore and crude oil experienced more pain yesterday, with prices for both resources slipping a further 5% to US$53.28 per tonne and US$38.06 per tonne respectively.
With no signs of a turnaround yet to materialise, buyers must surely wonder if there is any money to be made in the sectors or if they're best off steering clear for the time being.
I have no crystal ball for commodity prices but I do feel that it is a brave investor who bought Fortescue Metals Group Limited (ASX: FMG) today after it posted an 88.5% decrease in profit on weaker iron ore prices.
Same too for investors who took a stake in Santos Ltd (ASX: STO) or Senex Energy Ltd (ASX: SXY) in recent days after those producers reported an 82% fall and an 87% fall in profits after tax respectively.
Commodities were smashed yesterday on market fears, rather than fundamentals so there is some chance that stocks will recover in the short term. Indeed, Fortescue Metals is up 10% in trade so far today. Senex and Santos shares traded flat for the day.
Over the longer term, however, the outlook is uncertain. There are no signs of the supply-demand equation easing in favour of higher prices and several major expansions are yet to come online which could result in additional downwards pressure on both iron ore and oil. Plenty of analysts believe prices are headed lower, although these forecasts can be flawed.
Some investors are surely considering topping up at these diminished prices – if iron ore and oil prices went back to US$100 a tonne, surely there's at least 100% upside in each of Santos, Senex and Fortescue at today's prices.
But, are commodity prices really going to go back up? Could you say with more than 50% accuracy that they will?
Maybe you would be better off owning something else, like Carsales.Com Ltd (ASX: CAR), which recently reported another lift in full-year profit.
Sure, it's not as exciting as doubling your money, but if your goal is a secure and comfortable retirement, without having to stress about your finances, surely the slow and steady long-term winner is the better option?
