Materials Sector Overview: Stocks Poised for Significant Upside

Aug 22, 2023 By John Davis

The materials sector, often overlooked in favor of its flashier counterparts like technology or consumer discretionary, has been quietly making waves in the stock market. This month, the top material stocks of Snowline Gold Corp. (SNWGF), Patriot Battery Metals Inc. (PMETF), and NGEx Minerals Ltd. (NGXXF) have each surged more than 150% over the past year, significantly outperforming the Materials Select Sector SPDR Fund (XLB) which fell 6% and the Russell 1000 Index that rose by 4%.

This article will go into the top three stock material in terms of value, growth, and momentum.

Best Value Materials Stocks

Value investing is a strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. The following stock material have the lowest 12-month trailing price-to-earnings (P/E) ratio, indicating that investors are paying less for each dollar of profit generated.

Cemex S.A.B. de C.V. (CX), a Mexico-based building materials provider, tops the list with a P/E ratio of 0.6.

Arch Resources Inc. (ARCH) and Alpha Metallurgical Resources Inc. (AMR), both suppliers of metallurgical products to the steel industry, follow with P/E ratios of 1.8 and 2.0, respectively.

Fastest Growing Top Material Stocks

Growth investing is a strategy that zeroes in on stocks with the potential to outperform the market by growing at an above-average rate. This approach is often favored by investors who are willing to take on higher risk for the chance of higher returns. The key indicators that growth investors look at are year-over-year (YOY) percentage revenue growth and earnings-per-share (EPS) growth. These metrics provide insights into a company's financial health and its potential for future expansion.

In the best materials stock sector, Albemarle Corp. (ALB) has been a standout performer. This company, which specializes in the manufacture of bromine and lithium specialty chemicals, has demonstrated impressive growth. Its EPS has grown by a staggering 389%, indicating a significant increase in profitability. Furthermore, its revenue growth stands at 129%, suggesting a robust expansion in its business operations and market share.

Hot on Albemarle's heels are Martin Marietta Materials Inc. (MLM) and Sylvamo Corp. (SLVM). Martin Marietta, a supplier of building materials to the construction industry, has shown an even higher EPS growth than Albemarle, coming in at 474%. This suggests that the company has been extremely effective at translating revenue into profit, a positive sign for potential investors.

Sylvamo Corp., a global producer of paper products, has also demonstrated strong growth, with an EPS growth of 281%. This high growth rate indicates that Sylvamo has been successful in increasing its profitability, making it another attractive option for growth-focused investors.

Materials Stocks with the Most Momentum

Momentum investing involves a strategy to capitalize on the continuance of an existing market trend. The following stocks had the highest total return over the past 12 months.

Snowline Gold Corp. (SNWGF), a gold exploration company, tops the list with a 336% return. Patriot Battery Metals Inc. (PMETF), a company that explores lithium, copper, gold, and platinum deposits, follows with a 310% return. NGEx Minerals Ltd. (NGXXF), a company that explores and develops mineral properties in South America, rounds out the top three with a 158% return.

Advantages and Risks of Investing in Stock Material

Investing in materials stocks offers the advantage of core demand stability, as materials are the foundation of the global economy. Additionally, materials companies that mine for precious metals provide investors with a partial hedge against cyclical holdings in their portfolio.

However, investing in materials stocks also comes with risks. Rising costs can crimp earnings, especially if they coincide with falling commodity prices. Especially in unionized sectors like mining, industrial action can temporarily halt or curtail operations, which can have a negative effect on a company's earnings and share price.

Frequently Asked Questions

What is the significance of a low P/E ratio in materials stocks?

A low price-to-earnings (P/E) ratio indicates that you're paying less for each dollar of profit generated by the company. This may indicate that the stock is underpriced and that now would be a good time to buy. However, investors shouldn't assume that a low P/E ratio always indicates a profitable investment. Think about the company's development potential, its financial stability, and the state of the market as a whole.

How can materials stocks serve as a hedge against cyclical holdings in a portfolio?

Materials companies that mine for precious metals, such as gold and silver, can provide a partial hedge against cyclical holdings in an investor's portfolio.

This is because precious metals often perform well during market downturns or periods of economic instability.

When other sectors or investments are underperforming, the value of precious metals – and by extension, the stocks of companies that mine them – can rise, helping to offset losses elsewhere in the portfolio.

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