Cyclicality in the Materials sector leads to significant volatility in share prices, as many of the underlying business models are strongly correlated with commodity markets and broader economic trends. On the flip side, the same correlation provides diversification and hedging benefits to investors and also yields superior profitability for companies during inflationary periods.
It is also worth noting that certain segments within the broader Materials classification are poised to benefit more from ongoing global transitions across sectors such as energy and technology. For instance, energy transition trends such as electric vehicles and solar will lead to an uptick in demand for commodities such as lithium, copper, cobalt, nickel, etc. Similarly, AI-related developments will generate additional demand for silicon, palladium, gallium, germanium, and rare earth materials.
However, there are other segments that have struggled with industry-specific and macroeconomic challenges. On December 19, McKinsey & Company published a report, “Chemicals 2025: A new reality for the global chemical industry.” It highlighted how the chemical industry, which used to be an outperformer, had been delivering lagging returns relative to the broader market in recent times. This calls for businesses to rework their cost structures, capacity utilization, product portfolios, and innovation spend.
Agriculture is another sector with immense potential for investors, but it also exposes them to macroeconomic and policy risks. On January 16, advisory firm Pinion Global shared its 2026 Outlook, highlighting uncertainties linked with tariffs, rising input costs, and trade deals to shape the agricultural landscape.
Despite the above-mentioned hurdles, many underlying businesses within the broader Materials universe will keep garnering investor interest and will offer lucrative opportunities from time to time.
With that background, let’s explore our 10 Best Materials Stocks to Invest in According to Hedge Funds.
Copyright: lightkeeper / 123RF Stock Photo
Our Methodology
To identify relevant stocks for this article, we began by screening U.S.-listed companies within the Materials sector having market capitalizations above $2 billion. We then added a filter to include only companies with share prices above $5 to avoid penny stocks. Also, we shortlisted only stocks with at least 5% upside potential according to TipRanks consensus as of January 19.
In the final part of the screening, we identified the number of hedge funds that held positions in these stocks as of the end of the third quarter of 2025, using Insider Monkey’s hedge fund database. Finally, we selected 10 stocks with the highest number of hedge funds holding stakes and ranked them in ascending order.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
10. Celanese Corporation (NYSE:CE)
Potential Upside: 25.1%
Number of Hedge Fund Holders: 45
Celanese Corporation (NYSE:CE) is one of the best Materials stocks to invest in according to Hedge Funds.
On January 16, Arun Viswanathan of RBC Capital reaffirmed his favorable view on Celanese Corporation (NYSE:CE), maintaining a Sector Perform rating on the stock. He also adjusted his target price estimate from $43 to $48, which results in an upside of 8.5%.
Viswanathan’s rating is based on his broader analysis of the Commodity Chemicals space. The analyst noted that Celanese Corporation (NYSE:CE) registered a lower level of production utilization for its TiO2 segment during the fourth quarter. This resulted in a $25 million incremental charge for the business. Despite such challenges, Viswanathan raised his price target based on the commercialization of immersion cooling expected during 2026.
On January 15, Citi analyst Patrick Cunningham also reiterated his bullish stance on Celanese Corporation (NYSE:CE). He assigned a Buy rating and revised his price target from $56 to $63, which now yields an upside of more than 42%.
Cunningham’s views stem from Citi’s revisions for the Commodity Chemicals segment following the Q4 earnings preview. The firm also projected solid margins in 2026, driven by depressed ethane costs and production discipline.
Celanese Corporation (NYSE:CE) is a global specialty materials and chemicals leader that is involved in the production and sale of polymers across the globe. The company operates through its two segments, i.e., Engineered Materials and Acetyl Chain. It sells products under various brands, including FRIANYL, Celcon, Crastin, Rynite, Vectra, and Laprene.
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