The 3 Most Undervalued Materials Stocks to Buy in July 2024

  • These 3 undervalued materials stocks are gems:
  • Albemarle (ALB): After plummeting 31.5% on a year-to-date basis, ALB trades at 2.6x forward sales. 
  • Rio Tinto (RIO): Recovery in Rio Tinto’s bauxite and copper facilities could be good news.
  • BHP Group (BHP): Despite iron ore prices declining in 2024, the Australian mining group’s diversification should help to mitigate any major swings in profit. 
Undervalued Materials Stocks - The 3 Most Undervalued Materials Stocks to Buy in July 2024

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The materials sector generally encompasses industries involved in the discovery, extraction, and processing of raw materials. These companies can be dealing with metals, minerals, chemicals, or construction materials, and some are even big enough to cover multiple aspects of the sector. Key industries within the materials sector are mining and chemical production, which supply essential inputs for manufacturing, construction, and other activities in the real economy. The materials sector exposure to mining and chemical production needed for major industries have made it particularly susceptible to boom-and-bust cycles. As a result, we decided to share our favorite undervalued materials stocks.

Materials like silver, iron ore, and, most recently, lithium, are commodities that have undergone major swings in prices over the past couple of years. Nowadays, out of the three minerals just mentioned, only silver has seen a price surge over the past 3 years. This has, in turn, translated to poor returns for materials stocks, yet the downward part of the commodity cycle could be on its way out, leaving some undervalued material stocks in its wake. Below are 3 of them.

Albemarle (ALB)

Albemarle (ALB) logo on a mobile phone screen
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Albemarle (NYSE:ALB) is a major specialty chemicals giant that has major sway in the lithium and bromine chemical markets. The company’s “Specialties segment” is leading provider of bromine-based specialty chemicals, including elemental bromine, alkyl and inorganic bromides, and other derivatives. However, Albemarle doesn’t just refine these chemicals or make them in a lab; rather, the specialty chemicals firm extracts bromine from brines that are located in salt-water aquifers. Albemarle’s extraction sites include Magnolia, Arkansas and Jordan. The company also has a similar vertical structure when it comes to the “Energy Storage” business segment, which deals with lithium production and extraction for electric vehicles. This also happens to be Albemarle’s largest business segment, contributing $7.1 billion in fiscal year 2023 to Albemarle’s total net sales figure, which stood at $9.6 billion.

Because lithium carbonate prices have plummeted due to oversupply and a lack of demand coming from the EV industry, Albemarle’s stock has plummeted 31.5% on a year-to-date basis. The specialty chemicals firm trades at only 2.6x forward sales, which makes it incredibly undervalued, especially if we take into account the fact commodities like lithium will eventually rebound.

Rio Tinto (RIO)

the rio tinto (RIO) logo on a building during daylight
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U.K.-based Rio Tinto (NYSE:RIO) is a global mining and minerals processing company. The miner’s key minerals are iron ore, aluminum, and copper, all three of which make up Rio Tinto’s main business segments. Being around since the early 1870s, Rio Tinto has acquired a special expertise in mining a variety of minerals, and its production capabilities span different continents. In fact, Rio Tinto has built mines and refining facilities in the Americas, Australia, western and southern Africa, East Asia, the Middle East, and Central Europe.

2023 was a rough year for the miner due to not only inflation creating costs on the production and logistics side, but also sizable drops in the prices of aluminum and other minerals. Earning declined 12% on a year-over-year basis, but the company still issued a better-than-expected dividend that delighted markets. In the first quarter of 2024, iron ore production at Rio Tinto’s Pilbara mining facilities declined year-over-year, but aluminum, bauxite, and copper all saw meaningful increases.

RIO’s share price are down more than 5% on a year-to-date basis, and the miner’s stock only trades at 9.5x forward earnings and 2.2x forward sales. Rio Tinto’s juicy dividend which yields about 6.4%, according to Koyfin, also lends to the stock’s attractiveness. Wtihout question, this is one of the most undervalued materials stocks.

BHP Group (BHP)

Smartphone with BHP Group logo in front of BHP website. BHP stock.
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BHP Group (NYSE:BHP) is an Australia-based extractor and refiner of minerals. Similar to Rio Tinto, BHP has exposure to a variety of minerals, including iron ore and copper. The Australian miner also extracts metallurgical and energy coal. Recent financial results have not been too negative either. In the first half of BHP Group’s fiscal year 2024, revenue totaled $27.2 billion, creeping up 6% year-over-year. Higher iron ore and copper prices as well as contribution from new mines, Prominent Hill and Carrapateena, helped generate the financial figures. Despite price growth driving revenue, inflationary pressures took a toll on BHP’s operating costs, ultimately denting margins

Because iron ore prices, which are significant determinant of profit for BHP, have begun to slip in 2024, investors are becoming nervous about BHP’s financial performance in the near term. According to Koyfin, iron ore prices have slumped more than 18% since the start of the year.

Still, BHP carries with it an attractive 11.1x forward earnings, and the miner’s diversification in other minerals could help to offset any price swings in iron ore. This makes the stock one to consider. This is easily one of the best undervalued materials stocks.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

On the date of publication, Tyrik Torres did not hold (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.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.


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