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. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  4. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  5. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  6. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  7. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  8. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
  9. Stock Analysis

    The Biggest Risks of Investing in SandRidge Stock

    Learn about the significant risks of investing in SandRidge. Read how the company may not be able to service its substantial debt load.
  10. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center