While materials stocks occupy the undesirable quality of competing for the title of most boring investment category, Wall Street might very well apply a premium for dull holdings. For instance, while the S&P 500 index has been a solid performer — up 18% on a year-to-date (YTD) basis — over the trailing month, it’s down just under 1%.
Concerns about domestic economic stability, along with rumblings overseas has investors spooked. Not surprisingly, many folks are deciding enough is enough, taking their money out of risky ventures. While the U.S. market isn’t exactly a sterling opportunity, the reality is that over the long term — as legendary investor Warren Buffett implied — America represents a solid place to grow your wealth. And that sets up an intriguing scenario for materials stocks.
As you know, one of the reasons for President Joe Biden’s election victory last year was his promise to “build back better.” What that slogan translated to was a multi-trillion-dollar infrastructure bill, an initiative that if passed would augur well for materials stocks. Of course, fiscally conservative Republicans and moderate Democrats aren’t exactly thrilled at the scope of the proposal. Per the Washington Post, Biden is attempting to broker a truce within his own party ranks.
Given the acrimony — and sometimes sheer chaos — of the Washington machinery, it’s not entirely clear what will come of the infrastructure bill. But in terms of the viability of materials stocks, prospective investors might not need to worry so much about domestic politics. As it turns out, the situation in China — particularly the liquidity crisis of major property developer China Evergrande (OTCMKTS:EGRNF) — is much worse.
Therefore, a combination of faith in the American political process and cynicism that not many stable opportunities exist abroad casts a favorable light on boring but reliable companies dedicated to rebuilding from the novel coronavirus disaster.
Volatility-weary investors may want to consider these materials stocks:
- International Paper (NYSE:IP)
- Celanese (NYSE:CE)
- LyondellBasell (NYSE:LYB)
- DuPont (NYSE:DD)
- Nucor (NYSE:NUE)
- Southern Copper (NYSE:SCCO)
- Olin Corporation (NYSE:OLN)
Just to be clear, boring investments don’t necessarily equate to insulation from red ink. As U.S. Treasury Secretary Janet Yellen reminded us in an op-ed for the Wall Street Journal, we’re not exactly out of the woods either — far from it. Thus, it’s best to approach these materials stocks with the same due diligence as you would any other business sector.
Materials Stocks to Buy: International Paper (IP)
At first, you might be forgiven for rolling your eyes at International Paper. While materials stocks never registered highly on the excitement scale, International Paper also appears to be irrelevant. With so much emphasis placed on going green — and therefore digital — there doesn’t seem to be much room for IP to grow. The Covid-19 crisis has also placed importance on contactless transactions.
Nevertheless, growing is exactly what it’s doing right now. Certainly, 2020 was a rough year for International Paper, with its revenue down 8% from 2019’s tally. However, in the trailing-12-month period, the company is on course to generate $21.3 billion, up nearly 4% from 2020’s result. That’s not bad for a seemingly anachronistic investment.
In reality, materials stocks form the physical backbone of our economy, and International Paper is no different. True, we may be attempting to reduce our dependency on paper, but thanks to the mercurial rise of e-commerce during the lockdowns, packaging demands have accelerated. Additionally, IP is directly linked to seemingly mundane but vital goods like baby diapers and personal hygiene products.
One of the peculiar dynamics of materials stocks is that while the segment as an investing opportunity doesn’t always bring the pizzazz, the underlying products and services are vital to everyday living. Take Celanese as an example. A global chemical and specialty materials firm, it’s not exactly a household name. However, it’s no hyperbole to suggest that Celanese represents the difference between life and death for its innovations’ ultimate end-users.
Among the many solutions the materials company provides, it has a robust healthcare and life sciences business. From drug delivery methods and devices to surgical and medical consumable solutions (i.e., tubing, respiratory equipment, dental products), it’s very likely that we’ve all come in contact with the Celanese brand.
If that wasn’t enough to pique your interest, the company also represents a vital cog in the 5G rollout — that’s right, it’s not just telecom shares that you should consider but also materials stocks! In this case, Celanese lends its hand through expertise in liquid crystal polymer solutions and other high-performance thermoplastics.
Materials Stocks to Buy: LyondellBasell (LYB)
For those who are looking for value in their materials stocks, you might want to check out LyondellBasell. Based in the Netherlands, LyondellBasell is one of the world’s largest plastics, chemicals and refining companies. From high-level industrial applications to the most mundane activities, LYB features “background” relevance across the board.
For instance, a major component of LyondellBasell’s everyday solutions is in food packaging. According to Grand View Research, the global ready-made meals market reached a valuation of $159.15 billion in 2019, with experts predicting that it will expand at a compound annual growth rate of 5.5% from 2020 to 2027. That translates to global revenue of $244.3 billion by the end of the forecasted period.
Why is this important for LYB stock? The underlying company recognizes that consumers are looking for “the quick and easy solution” in their packaged food products, an attribute that LyondellBasell specializes in.
Best of all, LyondellBasell is the world’s largest licensor of polyolefin technologies, which have myriad applications in industries ranging from medical, filtration and transportation sectors, among others. Should the U.S. and other nations spark a build out, LYB could benefit handsomely.
One of the world’s premiere materials stocks, DuPont is synonymous with everyday products and innovations that we take for granted. From home goods to military applications, if you want maximum coverage in this sector with one name, DD stock would be it.
What’s particularly appealing about DuPont at this juncture is that it could be one of the most viable value plays among materials stocks. Similar to LYB and CE above, DuPont shares have printed some red ink recently. Over the trailing month, DD found itself staring at a 7% loss. And on a YTD basis, it’s down over 3%.
However, that could be due for a change because of our rapidly changing world. For instance, DuPont produces Nomex, a heat-and-flame resistant material that’s vital for protecting firefighters. As you know, climate change has contributed to record-breaking wildfires, which cynically drives demand for Nomex products.
As well, DuPont is famous for manufacturing Kevlar, which in addition to being vital for infrastructure is best known for undergirding military body armor. With our national security profile increasingly shaky, DD stock offers multi-tiered relevance.
Materials Stocks to Buy: Nucor (NUE)
If you believe that President Biden can resolve conflicts brewing between high-profile Democrats and succeed in pushing through the infrastructure bill, Nucor will be one of the top materials stocks to consider. Billed as the “safest, highest quality, lowest cost, most productive and most profitable steel and steel products company in the world,” Nucor has a track record that few can assail.
At the same time, it’s appropriate to consider the risks, which are rather sizable. Obviously, if Washington acrimony succeeds in scuttling the infrastructure bill, NUE stock will look far less attractive than it does now. In addition, the underlying company is exposed to global growth dynamics; hence NUE’s sharp loss on Sept. 20 following China Evergrande’s default worries.
As a result of the nearer-term threats, NUE has been discounted sharply in recent days. Over the trailing month, it’s down 15%. However, if the government approves some level of infrastructure spending, NUE could benefit.
Also, Nucor provides steel solutions for the automotive industry, which has been a disaster due to the semiconductor supply crisis. Nevertheless, once that problem fades away, Nucor could swing higher on a demand ramp up.
Southern Copper (SCCO)
Back in May of this year, some commodity analysts suggested that investors take a contrarian view on the copper mining space, arguing that it was undervalued compared to the target commodity. Further, they anticipated higher prices in the fourth quarter of 2021, suggesting that key copper fundamentals — including dollar weakness and a post-Covid-19 recovery trek — should bode well for the industrial metal.
Despite some key changes to the global economic forecast since then till now, many factors remain positive for copper. By logical deduction, Southern Copper could be one of the top materials stocks to buy once we work out of the present funk.
Moving forward, should the Biden administration succeed in its infrastructural buildout initiatives, Southern Copper stands poised to deliver big contrarian gains as the underlying commodity is critical to electric vehicle production. If the White House is serious about getting the U.S. economy to hit net-zero emissions by 2050, EVs will play a critical role.
Further, copper being a highly efficient conductor of electricity is also crucial for renewable energy systems. Thus, SCCO is one of the must-watch names among materials stocks.
Materials Stocks to Buy: Olin Corporation (OLN)
As one of the global leaders in chemical production — particularly chlor alkali products and epoxy — Olin Corporation enjoys relevant demand sources from myriad industries. As such, OLN will be among the materials stocks to gain an advantage from the infrastructure bill should it pass.
However, I can understand that some people might not be interested in buying shares that have anything to do with Biden’s policies. Following the Afghanistan debacle, the president doesn’t exactly have the confidence of the nation. But if you do happen to have hard feelings about the current administration, then OLN stock could be a cathartic wager.
In addition to chemical products, Olin owns the Winchester brand of ammunition. Due to the record-breaking surge in firearms sales, ammo prices have likewise shot through the roof due to dwindling supplies. Moreover, the ridiculous prices continue to be a challenge for the outdoorsman types.
Some reports indicate that the ammo shortage could last between 12 to 24 months. Moreover, threats of gun control policies could spike up demand for firearms and related products. Thus, the Biden administration is a perfect catalyst for OLN stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.