While the market rally on Thursday was a relief to beleaguered investors, the fact is that 7.7% year-over-year inflation is still way above the 2% Federal Reserve target. While the 75-basis-point increases in the federal funds rate are likely over, the increases are probably not.

Cryptocurrency has been eviscerated, big tech has been destroyed and is laying off tens of thousands of employees (Amazon lost $1 trillion in market cap), and even “safe” stocks like Disney have imploded. So what will work in 2023?
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One good bet for next year is the continued strength in commodities, which come in many forms, from metals and mining to oil and gas to grains and more. We decided to screen the Goldman Sachs commodity research database looking for stock ideas for next year that are Buy rated and come with very dependable dividends. The following five stocks came up. While all are favorites at Goldman Sachs and across Wall Street, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Bunge

This top mid-cap stock has rallied nicely off the July lows but still offers investors an outstanding entry point. Bunge Ltd. (NYSE: BG) operates as an agribusiness and food company worldwide. It operates in the following segments.

The Agribusiness segment purchases, stores, transports, processes and sells agricultural commodities and commodity products, including oilseeds (primarily soybeans, rapeseed, canola and sunflower seeds) and grains (primarily wheat and corn) and vegetable oils and protein meals. It provides its products for animal feed manufacturers, livestock producers, wheat and corn millers and other oilseed processors, as well as third-party edible oil processing companies, as well as for industrial and biodiesel production.

The Edible Oil Products segment provides packaged and bulk oils and fats, including cooking oils, shortenings, margarines, mayonnaise and others for baked goods companies, snack food producers, confectioners, restaurant chains, foodservice operators, infant nutrition companies and other food manufacturers, as well as grocery chains, wholesalers, distributors and other retailers.

The Milling Products segment offers wheat flours and bakery mixes, corn milling products (including dry-milled cornmeals and flours, wet-milled masa and flours, and flaking and brewer’s grits, as well as soy-fortified cornmeal, corn-soy blends, and other products), whole grain and fiber ingredients and milled rice products.

The Sugar and Bioenergy segment produces sugar and ethanol, and it generates electricity from burning sugarcane bagasse. The Fertilizer segment offers nitrogen, phosphate and potassium fertilizers, as well as single super phosphate, ammonia, ammonium thiosulfate, monoammonium phosphate, diammonium phosphate, triple superphosphate, urea, urea-ammonium nitrate, ammonium sulfate and potassium chloride.

Bunge stock comes with a 2.40% dividend and is on the Goldman Sachs Conviction List of top stock ideas. The firm’s $165 price target would be a new all-time high. The shares closed on Thursday at $102.19.

This is the largest publicly traded energy partnership and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) provides a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, NGL fractionation, import and export terminaling, and offshore production platform services.
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One reason many analysts may have a liking for the stock might be its distribution coverage ratio. This ratio is well above 1 times, making it relatively less risky among the MLPs. Trading at a reasonable 10.7 times estimated 2022 earnings, this is a solid value now.

Investors receive a 7.76% distribution. Goldman Sachs has a $30 price target on Enterprise Products Partners stock, though the consensus target is slightly higher at $31.61. Shares closed at $24.97 on Thursday.

Exxon Mobil

Despite the rally in oil this year, this mega-cap energy leader trades at a reasonable valuation and still offers investors an excellent entry point. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

Top Wall Street analysts expect Exxon to remain a key beneficiary in this higher oil price environment, and most remain strongly positive about the company’s sharp positive inflection in capital allocation strategy, upstream portfolio, and leverage to a further demand recovery, with Exxon Mobil offering greater downstream/chemicals exposure relative to peers.

This top U.S. oil producer most recently reported a per-share profit that exceeded Wall Street’s consensus view, due to a huge jump in natural gas earnings, continued high oil prices and strong fuel sales.

Shareholders receive a 3.34% dividend, which will continue to be defended. The Goldman Sachs price target of $121 is well above the $114.64 consensus target. Exxon Mobil stock closed on Thursday at $110.50.

This is one of the largest mining companies and a solid buy for investors who are more conservative and looking to own gold. Newmont Corp. (NYSE: NEM) is engaged in the production of gold.
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Its North America segment consists primarily of Carlin, Phoenix, Twin Creeks and Long Canyon in Nevada and Cripple Creek and Victor in Colorado. The South America segment consists primarily of Yanacocha in Peru and Merian in Suriname. The Australia segment consists primarily of Boddington, Tanami and Kalgoorlie in Australia. The Africa segment consists primarily of Ahafo and Akyem in Ghana.

The dividend yield here is 5.32%. Goldman Sachs has set a $50 price objective. The consensus target for Newmont stock is $64.48, and shares closed on Thursday at $46.41, up 7% on the day.

Rio Tinto

Shares of this mining company could explode higher if the world economy rebounds strongly in 2023. Rio Tinto PLC (NYSE: RIO), the world’s second-largest mining company, has operations in Australia, Africa, the Americas, Europe and Asia. It is the world’s largest producer of aluminum, second largest producer of iron ore, and a top five producer of alumina, uranium, mined copper, export thermal and coking coal, and diamonds.

In addition, Rio Tinto is also involved in alumina production; primary aluminum smelting; bauxite mining; alumina refining; and ilmenite, rutile and zircon mining, as well as the provision of gypsum.

While the company pays dividends semi-annually instead of quarterly, and the current distribution is a massive 11.49%. This mining powerhouse is a solid stock to own, and trading at an incredible 5.58 times earnings and way off the 52-week high, it really makes for a good value idea now.

Rio Tinto stock has a $72.41 price target in U.S. dollars. That compares with a $70.19 consensus target and Thursday’s closing print of $60.81.

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The five top companies are in a sector that is expected to continue to have strength in 2023. The reality for investors is that, while inflation will drop as we finish out the year and head into next year, the trailing results of much higher interest rates year-over-year have yet to be seen. We could be in for a rough first half of next year. Adding top commodity stocks now makes sense if that scenario indeed plays out.

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