7 Materials Stocks Ready to Make Some Major Moves
Long-term investors frequently buy into sectors that are underperforming the market in the current year. History suggests that cyclical factors can provide a catalyst for those stocks to outperform the market the following year. That laggards-to-leaders strategy establishes the premise for finding materials stocks to buy as 2023 ends.
As of October 5, 2023, the materials sector was up about 0.6% for the year. That’s far below the S&P 500, which is up about 11% for the year. And that’s even with the recent sell-off.
One reason for the sector’s relatively lackluster performance is the breadth of this sector. It includes construction materials and steel, which are performing well this year. But it also includes metals and mining stocks that are affected by commodity prices and chemical stocks. All of these sectors have headwinds related to a slowing economy.
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With many economists forecasting a recession in early 2024, the recovery may still be several quarters away. However, materials stocks will be among the first to recover. That’s why now may be a good time to consider starting a position in these materials stocks.
Freeport-McMoran (FCX)
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Mining stocks make up part of the materials sector, and Freeport-McMoran (NYSE:FCX) is one of the top mining stocks to consider for the coming quarters. The Phoenix, Arizona-based company is the world’s largest publicly traded copper company.
That’s been a mixed blessing for FCX shareholders. Copper demand has not been as robust as expected, and the price of copper is down more than 6%. Not surprisingly, FCX stock is down by virtually the same percentage.
However, in the company’s second-quarter earnings report in July 2023, Freeport McMoran’s chief executive officer (CEO) Richard Adkerson noted that global copper inventories remain low while demand remains strong.
The takeaway is the same as it was earlier this year. Unless global governments retreat from their focus on renewable energy, copper demand will likely surge, and with it, the price of copper. That will allow investors to focus on the company’s strong balance sheet and outlook for earnings, which are expected to climb by 34% from $1.61 to $2.16 per share.
Southern Copper (SCCO)
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Southern Copper (NYSE:SCCO) is another way to invest in the expected surge in copper demand. The company has over $89 million in copper reserves. This is largely due to its massive footprint in Peru, which holds about 13% of the world’s copper. In September, the company forecasted an increase in Peruvian copper production to 400,000 metric tons – a 17% year-over-year (YOY) increase.
However, unlike Freeport-McMoran, SCCO stock is up 19% in 2023. But the stock is down 9% in the last month. This may explain why the stock has a consensus Sell rating despite projecting earnings growth of 22% in the next year. It didn’t help that the company missed on both the top and bottom lines in its most recent earnings report.
Analysts may feel that all that growth is priced in. On the other hand, the miner does come with an attractive dividend that currently yields 5.58% and pays out $4 per share on an annual basis.
Albemarle (ALB)
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The last metal and mining stock on this list of materials stocks to buy is Albemarle (NYSE:ALB). The bullish case for Albemarle has to do with the expected growth in demand for lithium. Along with copper, lithium will be needed as a base metal for many of the most in-demand technologies, such as EV batteries and renewable energy storage.
There are many ways for investors to invest in lithium. Albemarle is one of the safest if you want growth over time. Unlike copper, there are concerns that the world is facing an oversupply of lithium. That may be reflected in the ALB stock price, which is down 28% this year.
On the other hand, Albemarle is forecasting a 17% drop in earnings from $25.90 to $21.48. That’s in contrast to analysts who have a consensus price of $257.86 for ALB stock, a 66.3% increase from its closing price on October 5, 2023.
Air Products & Chemicals (APD)
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A company whose primary business is industrial gases is a logical choice to make a list of materials stocks to buy. However, that’s only part of the story behind Air Products & Chemicals (NYSE:APD). The company generates over 3 billion cubic feet of hydrogen every day. That makes it one of the world’s leading producers of hydrogen.
Of course, investors have been talking about the hydrogen revolution for several years. It would be easy to dismiss this moment as yet another example of when “this time is different” wasn’t different. However, the company continues building partnerships that suggest hydrogen demand will match the hype.
Besides, that’s only one source of revenue for the company, which continues to beat earnings estimates year-over-year. And in the coming year, the company expects earnings to grow by 12%. That corresponds to the 14% increase in the APD stock price being forecast by analysts.
Nucor (NUE)
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Nucor (NYSE:NUE) presents investors with what may be a no-lose scenario. The company’s revenue and earnings increased sharply as demand for steel increased in 2020 and 2021. However, as demand normalizes, Nucor is finding it harder to meet revenue estimates. And the company is now forecasting that it may also start missing earnings projections.
That suggests that investors may want to place more importance on the 7% decline in NUE stock in the last 30 days as opposed to the 18% increase in the stock so far in 2023. On the other hand, at the end of 2022, Nucor joined the exclusive ranks of Dividend Kings. This is marked by companies that have increased their dividends for at least 50 consecutive years.
That dividend currently pays $2.04 per share on an annual basis. That means that investors who bought the stock for growth may now want to hold the stock for the income it provides. And the company is also rewarding its shareholders with a $4 billion share repurchase plan.
Sherwin-Williams (SHW)
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Sherwin-Williams (NYSE:SHW) is North America’s largest paints and coatings manufacturer. The company blew away forecasts on the top and bottom line in its second-quarter earnings report in July 2023. However, that’s not reflected in the price of SHW stock, which is down nearly 2% in the last three months.
But that highlights an attractive feature of the company’s stock. It’s a low-beta stock, which means it will generally drop less when stocks are under pressure. The company also offers investors with an attractive dividend.
Of course, the stock may not have an impressive yield (it’s only 0.95%), but it’s grown the dividend an average of 19% over the last three years.
Sherwin-Williams is also a Dividend Aristocrat that has increased its dividend for 46 consecutive years. That combination of a low beta value and an attractive dividend makes Sherwin-Williams an easy pick as one of the more compelling materials stocks to buy.
Bunge Limited (BG)
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For the last stock on this list of materials stocks to buy, I’m looking at the agriculture sector, and one of the leading names is Bunge Limited (NYSE:BG). The company is vertically integrated, with operations stretching from farmers to consumers.
The company is one of the leading providers of agricultural commodities such as wheat and sugar. And in June, the company merged with Viterra, the agriculture division of Glencore. This will allow the company to capture more of the global agricultural demand and increase the company’s earnings outlook.
That would be welcome news to shareholders. The company is projecting earnings to drop 4% in the next year. BG stock is down 8% in the last month after being up 18% in the last year. However, analysts give the stock a Moderate Buy rating with a 22% upside.
On the date of publication, Chris Markoch had a LONG position in FCX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.
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