The materials sector includes companies engaged in the discovery, development and processing of raw materials, which are used in a wide range of sectors and industries. Materials stocks include manufacturers of products as varied as plastic, fertilizers, paper, concrete, and metals. Prominent names include Ecolab Inc. (ECL), Air Products and Chemicals Inc. (APD), and DuPont de Nemours Inc. (DD).
Many commodities, including metals, soared following the Russian invasion of Ukraine in February 2022, with stocks of selected materials seeing big gains. However, ongoing inflation and interest rate hikes, coupled with looming concerns about a recession, have caused some commodity prices to fall in recent weeks.
Materials stocks, represented by one exchange-traded fund (ETF), the Materials Select Sector SPDR ETF (XLB), have outperformed the broader market. XLB’s total return was -5.4% over the last 12 months, above the benchmark Russell 1000 index’s total return of -8.2%. These market performance numbers and all statistics in the tables below are as of August 24, 2022.
Here are the top three materials stocks with the best value, fastest growth, and most momentum.
These are the material stocks with the lowest price-to-earnings (P/E) ratio over the last 12 months. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you are paying less for every dollar of profit generated.
|Best Value Material Stocks
|Market capitalization (Market Cap) ($B)
|12-month P/E ratio
|United States Steel Corporation (X)
|Cleveland-Cliffs Inc. (CLF)
|Steel Dynamics Inc. (STLD)
- United States Steel Corporation: United States Steel is a manufacturer of steel products. It primarily sells flat-rolled and tubular products in North America and Europe.
- Cleveland-Cliffs Inc.: Cleveland-Cliffs is a major North American flat-rolled steel producer and supplier of iron ore pellets. The company also supplies stainless steel pipe and other products. Cleveland-Cliffs issued an announcement on August 24 to indicate that it is increasing current spot market base prices for all of its carbon steel products, including hot-rolled, cold-rolled and coated steel products, by at least $75 per ton, effective immediately.
- Steel Dynamics Inc.: Steel Dynamics is a carbon steel producer and metal recycler. The company sells flat rolled steel sheets, structural beams, steel bars and other products. On August 22, Steel Dynamics announced a cash dividend for the third quarter of 2022 of $0.34 per common share. The dividend is paid on October 14 to shareholders of record as of September 30.
Here are the top materials stocks ranked by a growth model that rates companies based on a 50/50 weighting of their most recent quarterly YOY revenue growth percentage and quarterly earnings per share (EPS) most recent YOY. ) increase. Both sales and profits are critical factors in the success of a company. Therefore, ranking companies by a single growth metric makes a ranking susceptible to accounting anomalies for that quarter (such as tax law changes or restructuring costs) that may cause one figure or another to be unrepresentative of growth. business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.
|Fastest Growing Materials Stocks
|Market capitalization ($B)
|EPS growth (%)
|Revenue growth (%)
|CF Industries Holdings Inc. (CF)
|MP Materials Corporation (MP)
|Mosaic Company (MOS)
- CF Industries Holdings Inc.: CF Industries Holdings is a major manufacturer of nitrogen and phosphate fertilizer products worldwide. It sells nitrogen related products including ammonia, urea, ammonium nitrate solution and urea and ammonium nitrate. CF Industries announced earnings results on August 1 for the second quarter of 2022. Net income attributable to common shareholders grew nearly five times year-on-year as revenue more than doubled. The company experienced strong sales growth in all segments, offset by weather-related challenges in North America.
- MP Materials Corporation: MP Materials produces rare earth materials such as lanthanum, cerium oxides and carbonates. The company operates mining and processing facilities in California. On August 4, MP Materials released its financial report for the second quarter of 2022. Net income came close to tripling year-on-year as revenue nearly doubled. MP Materials said higher prices and tightly managed costs contributed to the quarter’s performance.
- The Mosaic Company: The Mosaic Co. is a major global producer and marketer of concentrated phosphate and potash, which are key crop nutrients. The company has clients in 40 countries. Mosaic announced on August 18 a quarterly dividend of $0.15 per common share. The dividend will be paid on September 15 to shareholders effective September 1, 2022.
These are the material stocks that had the highest total return over the last 12 months.
|Stocks of materials with greater momentum
|Market capitalization ($B)
|Cumulative 12-month total return (%)
|CF Industries Holdings Inc. (CF)
|Mosaic Company (MOS)
|Corteva Inc. (CTVA)
|Russell 1000 Index
|Materials Select Sector SPDR ETF (XLB)
- CF Industries Holdings Inc.: See above for company description.
- The Mosaic Company: See above for company description.
- Corteva Inc.: Corteva offers seed and crop protection products and services. Its offerings include germplasm and traits for use on farms around the world, as well as products to protect against weeds, insects, and disease.
Advantages of investing in material stocks
Core Demand: Materials companies provide products, such as metal, concrete, and chemicals, that are the foundation of the global economy. As the world recovers from the COVID-19 pandemic, governments are investing heavily in infrastructure and construction to stimulate economic growth, creating demand for a wide range of materials. In addition, consumers are spending accumulated savings on home construction and remodeling, which has led to a rush for materials such as wood, steel and cement. For example, at the height of the pandemic, the iShares Global Timber & Forestry ETF (WOOD) that tracks logging companies more than doubled amid growing demand for wood.
Portfolio coverage: Materials companies that mine precious metals, such as gold and silver, provide investors with partial coverage against cyclical holdings in their portfolio, often outperforming during market downturns. By contrast, stocks of cyclical materials, such as oil and gas producers, which are more closely related to the health of the economy, tend to outperform during periods of economic expansion. 2022 is an outlier, however, with energy outperforming other sectors year-to-date (YTD) due to Russia’s invasion of Ukraine and increased travel demand post-pandemic.
Risks of Investing in Material Stocks
Rising Costs: Materials companies face periods of rising costs that can hurt profits, especially if they coincide with falling commodity prices. Mining and resource development are capital intensive. Supply chain disruptions, rising fuel costs and machinery maintenance can create significant challenges, especially during periods of high inflation. For example, pandemic-related shipping grunts in 2021 caused the benchmark price to ship copper in the US to hit its highest level since 2003.
Industrial action: Certain industries within the materials sector, such as mining, are heavily unionized, increasing the risk of industrial action that may temporarily suspend or reduce operations. A reduction in production has the potential to affect a mining company’s earnings, which can put downward pressure on its share price. In 2021, iron ore mining giant Rio Tinto Group (RIO) had to reduce one of its mines to 25% capacity for several months due to a strike, which union officials say cost the company around $5 millions daily.
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