Hot Commodities

SINCE THE BEGINNING OF 2004, the price of copper is up 235%. Over that same period, zinc is up 245% and aluminum is up 72%, according to the London Metals Exchange. Farm-based commodities have also risen: eggs, ground beef and bacon have all gone up by at least 15%.

While many commodity producers have seen tremendous runups in their stock prices, demand for their goods continues to increase, and their profits should continue to grow. "We think we're in year two or three of a 20-year cycle," says Mary Ann Bartels, chief U.S. market analyst at Merrill Lynch. "All the stars are aligned for a commodity bull market."

To find the best ways to invest in commodities now, we spoke with executives at commodity-producing companies, compared company stock valuations and researched historical supply-and-demand trends for metals, grains and livestock. We turned up a well-run mining firm and three food companies whose profit margins are expected to expand over the next few years. And we identified an exchange-traded fund as a pure-play way to invest in one particular shiny metal.
 
Southern Copper (PCU)
The price of copper has risen so much in value that theft of the metal is becoming a problem everywhere from Rome to the American Southwest. But we suggest a less brazen method of investing in the metal: the stock of Phoenix-based Southern Copper. Copper made up more than three-quarters of the company's $5.5 billion in revenue last year; silver, zinc and other minerals accounted for the rest.

Perdigão (PDA)
When it comes to supplying the world with food, Brazilian farmers are giving their American counterparts a run for their money. Brazil exported more than five billion tons of meat last year, up from less than three billion in 2002, according to the United States Department of Agriculture. And global demand is growing at 2% a year, driven by the rising affluence in emerging economies. Brazilian food processor Perdigão is leading the way.

Bunge (BG)
Soybean meal is one of the main feed components for farm animals, and worldwide demand has been growing at a solid 5% annual clip for the past decade. Bunge is one of the world's largest soybean processors, buying the beans from farmers around the world and refining them into meal and oils.

Tyson Foods (TSN)
A year ago rising corn prices were pushing up Tyson's feed costs, and a glut in the U.S. poultry market prevented the company from passing those costs along to customers. The company has since pared back costs by idling some chicken plants, and chicken prices have jumped 20% since last June. For its 2008 fiscal year (which starts in October), analysts expect Tyson to earn $647 million, or $1.83 a share, on $28 billion in sales. That's more than double the 85 cents a share Tyson is expected to make this year.

iShares Silver Trust (SLV)
When it comes to precious metals, gold gets all the headlines. But silver prices have nearly tripled, to $12 a troy ounce from $4.15 six years ago, outpacing gold's 144% gain. Global demand for silver is up 7% since 2002, to 912 million troy ounces a year, according to The Silver Institute. Once again, thank emerging nations and their demand for all sorts of electronic equipment for silver's popularity. Last year the world used 430 million troy ounces of silver for industrial applications, up 28% from 332 million troy ounces in 2002.