The one-two punch of rising demand and Federal Reserve monetary policy has many investors worrying about inflation. Gold and other commodities have seen their prices skyrocket as investors have flocked to the asset type in spades. New products such as the Global X Uranium Miners ETF (NYSE:URA) have allowed portfolios to tap into commodities sectors previously impossible. Over the longer term, worldwide demand for various natural resources makes them a slam dunk for portfolios. However, short term worries such as potential legislation and weather conditions can weigh down individual commodities. Finding other ways to play the commodities boom can be beneficial for portfolios.

IN PICTURES: 10 Reasons To Add ETFs To Your Portfolio

Hard Hats, Drills and Shovels
With commodity prices and the global economy rebounding, many miners are stepping up their capital expenditures (CAPEX) towards new operations and the expansion of old ones. Brazilian mining company and top iron ore producer Vale (NYSE:VALE) will invest a record $24 billion in 2011 in CAPEX as it diversifies toward specialty metals and fertilizers. Mining group Xstrata (OTCBB:XSRAY) plans to boost capital spending in 2011 by 89% to $6.8 billion. China, through its state-owned investment agencies, purchased $1.1 billion in Canadian minerals and Mozambique coal deposits in June. Overall, analysts estimate that CAPEX spending for the mining industry to be up about 30% this year and will increase by another 10% in 2011.

The real winners of the California Gold Rush of the 1800s weren't the miners themselves, but the suppliers of all of those picks, shovels and pans. Today's modern commodity rush, albeit more sophisticated, is having the same effect. Whether its gold, coal or neodymium, it still needs to be pulled from the ground and with our exploding worldwide population, we are extracting more each and every day. Today's companies that provide all the heavy machinery used in the mining process will be a direct beneficiary of all this increased mining activity. Investors looking for another avenue for commodities exposure in their portfolio can place their bets on the mining equipment makers.

Gaining Exposure
While there are plenty of ways for investors to bet on the price of various metals, such as the PowerShares Base Metals (NYSE:DBB) or Market Vectors Jr Gold Miners (NYSE:GDXJ), investing in the mining-equipment makers requires individual stock picking. Here a few picks.

With the recent rescue of the trapped Chilean miners, worker safety has been pushed to the forefront of everyone's minds. Providing respirators, hard hats, gas-detection instruments and a host of other safety devices, Mine Safety Appliances (NYSE:MSA) will see continued profits as a greater emphasis is place on safety.

Together, both Bucyrus (Nasdaq:BUCY) and Joy Global (Nasdaq:JOYG) control about 80% of the global mining-equipment market. Without them, you can't mine for any materials or metals. Period. Bucyrus' quarterly revenue rose 39%, but fell short of analysts' expectations by nearly 10%. This didn't scare off Caterpillar (NYSE:CAT), though, as the equipment giant's recent $8.6 billion acquisition of Bucyrus may be a game changer in the mining equipment industry. Another player is the second largest maker of construction and mining equipment Komatsu (OTCBB:KMTUY). The company recently raised its full-year earnings outlook after posting a near 10-fold jump in second-quarter profit. Strongly increasing demand from Asia and Komatsu's proximity to those markets makes it an ideal choice.

Bottom Line
Rising global demand and threats of increasing monetary inflation have investors looking towards commodities. Prices of the various metals and the companies that mine them have skyrocketed over the past few weeks as investor interest has peaked. Recent increases in miner CAPEX spending have opened up an alternative way to add exposure to the sector. By betting on the equipment makers, investors can profit independently of the individual movements in materials pricing. (For more, see The Industry Handbook: Precious Metals.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  4. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  6. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  9. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares US Oil&Gas Explor&Prodtn

    Learn about the iShares U.S. Oil & Gas Exploration & Production ETF, which provides an efficient way to invest in the exploration and production sector.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!