The materials sector tends to do well as the economy strengthens. Businesses buy more materials when the outlook for growth is most favorable, making materials stocks attractive at those points. I wouldn’t characterize the economy as “strong”, currently but the global growth forecast has improved over the last few months.
That implies that demand for materials is set to tick upward in the near term setting up a favorable scenario in the materials sector. Thus, identifying undervalued materials firms makes the potential returns even greater. If the global economy has indeed avoided a recession or if we’re actually moving out of one then these stocks will reward investors accordingly.
Rio Tinto (RIO)
Rio Tinto (NYSE:RIO) provides materials investors with a great deal of general exposure. The stock covers a wide range of materials from iron, copper and aluminum to diamonds, energy and other minerals. Rio Tinto employs more than 50,000 workers who are tasked with bringing those materials to market. In short, RIO stock is well-positioned to seize the general opportunity as the economy enters its next phase.
Basically, Rio Tinto appears to be positioning itself for an upswing in materials demand. The company’s sales volume increased by 5% through the first half of 2023 relative to the same period a year prior. In short, it’s pushing more products through its pipeline in anticipation that prices will rebound. Those prices have fallen during that same period resulting in 33% lower sales during H1 ‘23.
The company is making a push in the iron ore sector and marketing those efforts in its earnings report. That suggests the company sees a resurgence in overall building demand. RIO shares have roughly 33% upside based on target prices.
Corteva (CTVA)
Corteva (NYSE:CTVA) is an agriscience stock that remains undervalued at the moment following continued flatness across the business. That flatness has resulted in shares falling to levels well below where Wall Street believes it should trade. Add in Corteva’s modest dividend and it becomes apparent that investors who buy in now could see strong returns in the near future.
Corteva has basically shifted its sales mix in the first half which has resulted in overall sales increasing by 1% and -3% in H1 and Q2, respectively. Corteva has had to sell a greater volume of seeds while crop protection sales decline in order to tread water essentially. That has resulted in investors selling CTVA stock and prices declining. Sales increased overall throughout North America which is Corteva’s largest market by far. However, declines across Latin America, EMEA and Asia were significant enough to lower overall sales. The firm expects revenue, EBITDA and EPS figures to all increase during 2023 suggesting now is the time to invest in this materials stock.
Newmont Mining (NEM)
Newmont Mining (NYSE:NEM) is a cheap gold stock with a few reasonable narratives supporting it as an investment.
First of all, NEM shares are relatively inexpensive right now, trading at around $40 with the expectation of 20% growth over the next year or so. Newmont is also the largest gold miner globally based on 2022 production.
Anyway, there are at least two economic outcomes that could send NEM shares higher. Gold prices will rise if the economic situation worsens due to the U.S. dollar’s credibility weakening. Although things appear better at the moment that remains a distinct possibility. On the contrary, if the economy avoids recession gold sales could rise as input demand creeps upward for end applications.
Further, Newmont provides investors a buffer in the form of a dividend yielding 3.98%. Share prices are as low as they’ve been since 2019 and the dividend was last reduced in 2015. Newmont is unlikely to cause much damage to investors and has much more upside than it does downside, making it a great option for materials stocks to buy.
On the date of publication, Alex Sirois 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.
