While balancing your portfolio with the best basic materials stocks to buy has always been a solid strategy, geopolitical rumblings now make the concept almost a necessity. Just days prior to Russia’s invasion of Ukraine, the Biden administration released a statement noting that critical minerals form the building blocks of modern technologies. Therefore, securing their access and supply chains is vital.
Indeed, the U.S. Government Accountability Office (GAO) in June sounded the alarm, declaring that critical mineral shortages could further disrupt the flow of commerce in the globalized economy. In particular, commodities like aluminum, cobalt and lithium are crucial to properly developing the infrastructures of tomorrow. By logical deduction, the best basic materials stocks to buy enjoy a long-term upside narrative.
Moreover, it’s also worth stating that this segment doesn’t have to be so high-brow. Some of the commodities that we take for granted — such as paper — are absolutely crucial for the daily functioning of the economy. With so many interconnected parts, no one component can go missing without creating downwind impacts.
So, it’s time to take a serious look at the best basic materials stocks to buy now.
Best Basic Materials Stocks: Ovintiv (OVV)
Despite the Russian invasion of Ukraine beginning back in February, the longer-term ramifications may be just beginning. Specifically, the soaring cost of natural gas has caught many people by surprise. Talk all you want about green and renewable energy infrastructures; the reality is that we’re still tied to the hydrocarbon industry, which bodes well for Ovintiv (NYSE:OVV).
One of the largest independent natural gas companies in the world, OVV stock is a top performer, gaining almost 58% so far this year. Largely, the reason is fundamental. According to the U.S. Energy Information Administration, natural gas represented the largest source — about 38% — of U.S. electricity generation in 2021.
Furthermore, it’s very difficult for utilities to switch over to other energy sources to help pull the extra weight. For one thing, other sources are also in high demand. Second, you must consider the capacity factor of each energy source; basically, the reliability of power generation.
In short, natural gas has become exponentially critical, making OVV stock one of the best basic materials stocks to buy now.
Alliance Resource Partners (ARLP)
As the second-largest producer of coal in the eastern U.S., Alliance Resource Partners (NASDAQ:ARLP) also generates income from oil and gas mineral interests. While Alliance might not have been the most popular entity before the Covid-19 pandemic, geopolitical realities now force everyone to confront the dirty realities of power generation.
Just on that cynical basis alone, ARLP stock is an intriguing name among the best basic materials stocks to buy. To be sure, the equity unit has gained an impressive 99% on a year-to-date (YTD) basis. However, it’s not just about Russia threatening the world with nuclear warfare that makes Alliance Resource relevant.
As multiple publications have noted, many regions of the U.S. are encountering unusually hot weather. Obviously, this is going to increase demand for electricity, which is already bolstering natural gas prices. However, coal prices are also another beneficiary, which should help lift ARLP stock throughout this year.
After all, energy is one of those budget items that you really can’t avoid.
Best Basic Materials Stocks: Warrior Met Coal (HCC)
Another coal producer is Warrior Met Coal (NYSE:HCC), and it features a different objective than Alliance Resource but they’re similar companies. Warrior focuses exclusively on mining non-thermal metallurgical (met) coal, which is used as a critical component of steel production. And overall, the company has clients in Europe, South America and Asia.
On the surface level, a publicly-traded firm levered to the steel industry doesn’t seem like a good candidate for a list of best basic materials stocks to buy now. Should the global economy succumb to a recession, you’d expect steel inventory to rise and production demand to plummet. While that’s always a risk, steel is also a crucial commodity for manufacturing wind turbines.
By logical deduction, Russia’s aggression in Ukraine has spurred European policymakers to fast-track renewable energy initiatives. Wind, as well as solar, represent potentially viable energy alternatives. And therefore, steel demand could be robust.
Generally speaking, HCC stock has been a decent performer among the best basic materials stocks to buy, with shares up 18% YTD after a couple of steep drops in early July and August. Thus, potential investors should consider this one to buy now.
Rio Tinto (RIO)
As one of the world’s largest metals and mining firms, Rio Tinto (NYSE:RIO) commands a scaling advantage that’s simply not available to lesser outfits. On that basis alone, RIO stock deserves consideration as the best basic materials stock to buy.
Of course, the primary reason to add RIO stock to your portfolio is its diverse asset base. The company mines some of the most critical metals for the industries of tomorrow — and today — including aluminum, copper, borates and lithium. Indeed, the latter is an element that may be a driving catalyst for the crisis in Ukraine. Even if that were not the case, China is certainly eyeballing control of lithium supply chains.
Given so many geopolitical implications, I don’t really see an environment where Rio Tinto isn’t relevant. That’s why I consider the stock’s loss of 12% YTD as market noise. Over the long run, this is one of the best basic materials stocks to buy.
Best Basic Materials Stocks: Wheaton Precious Metals (WPM)
Easily one of the most disappointing sectors in the market right now is precious metals. Historically, assets such as gold represented safe havens against inflationary pressures. Well, we have plenty of inflation right now yet gold appears stuck in rangebound trading. And the disappointments have gone downwind, with companies like Wheaton Precious Metals (NYSE:WPM) not trading to their potential.
At the same time, those who stand ready to absorb choppiness in the market could find WPM stock to be an intriguing discount among the best basic materials stocks to buy. Utilizing a streaming business model, Wheaton is able to impart some price predictability, facilitating an advantage over pure-play precious metal miners. More importantly, the company’s key assets are vital for industrial needs.
For example, silver is an essential metal for both electric vehicles (EVs) and solar panels. Given its conductivity and resistance to corrosion, there are few economically viable alternatives to silver. Plus, Wheaton could eventually rise on the fear trade because there’s plenty of that going on.
Therefore, there are plenty of catalysts out there for Wheaton Precious Metals — making WPM stock one of the best basic materials stocks available.
International Paper (IP)
When it comes to the best basic materials stocks to buy, it doesn’t get more basic than International Paper (NYSE:IP). In a consumer economy that has largely shifted to digitalization, paper products seem anachronistic. Yet, the underlying commodity is essential to business.
For instance, while e-commerce may be all the rage these days, the products have to be packaged before they can be shipped to customers’ homes. That, of course, requires paper. With that, International Paper creates quality cellulose fiber products which serve a wide range of applications.
As you’ve probably heard, the recent baby formula shortages have dominated the headlines. And this disruption of what we would consider an “everyday product” — just like paper — truly underscores how vulnerable the economy is.
At the same time, it also provides a greater appreciation for companies like International Paper. It may be boring, but it’s no less important to the proper functioning of society than the high-flying digital firms.
Best Basic Materials Stocks: Air Products & Chemicals (APD)
Another one of the best basic materials stocks that few people think about on the regular is Air Products & Chemicals (NYSE:APD). Nonetheless, the firm makes up for its lack of pizzazz with core relevancies that have sizable implications across a range of industries.
As a company principally involved in selling gases and chemicals for industrial uses, Air Products & Chemicals is essentially the stagehand manager. You may not see it in action but the company’s services help the economy fire on all cylinders.
For instance, Air Products is the world’s leading provider of natural gas liquefaction technology. Through its acumen, the company has designed and manufactured over 100 liquefied natural gas (LNG) plants. And because of the crisis in Ukraine, LNG exports will play a crucial role in addressing the sudden global energy shortfall.
Currently, APD stock is down nearly 14% YTD, meaning that it’s on the riskier side of the best basic materials stocks to buy. However, if you can handle the heat, APD stock also offers significant upside potential.
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.
Editor’s note: This article is regularly updated with the latest information.