In this article, we will take a look at the 13 best basic materials stocks to buy now.
The basic materials industry is huge and includes major segments like oil, metals & mining, chemicals, and other raw materials. The industry often remains in flux amid changing oil and commodity prices. Oil companies account for a major chunk of the basic materials industry. Major oil stocks like ExxonMobil, Chevron, and Occidental Petroleum are trading in the red this year amid fears of a slowing economy and recession. This lackluster performance of oil companies comes after a huge outperformance of the energy sector last year.
Pessimism Around China
The biggest factor that is denting the performance of many energy and commodities companies this year is the pessimism surrounding Chinese economic growth. Earlier this year the market cheered the reopening of China. The world was expecting the demand for commodities to surge as Chinese factories and industries fire up. But the economic growth in China remains slower than expected.
For April, China’s indicator of manufacturing activity declined to 49.2 from the previous month’s 51.9 reading. On April 25, copper prices fell to their five-week lows after data indicated a slower-than-expected rebound in activity in China and rising inventors at the London Metal Exchange warehouse system.
Talking about the reopening dynamics in China and how it’s affecting iron ore, steel prices and related business of the company, Vale’s management said the following in its latest earnings call:
“So we’ve been seeing the recovery in China. Definitely we have strong numbers. You mentioned that GDP FAI very resilient, infrastructure investment properties, we have good news also. So the bright side that we are in the stocking mall in China. So, we see the sales increasing also the accomplishment of construction also increase. You mentioned all the micro numbers, blast furnace going well, we just came from China. It’s a common sense that production will be flat this year. So the production is there. So what is concerning today, so, the first thing is related to property. It is a cycle. So we firstly we need to sell, finish the construction. So land sales and new starts are coming.
So that didn’t come yet. So that’s the main volatility that we see in our — even in our clients. They are in a wait and see mode. But everybody’s waiting that for only for the second half. So we are on track and we need to wait for that. I think price in steel, it’s another concern. But the good news is, if you see the export that you had in China, this quarter. That implies that we have a symmetry in the price, ex-China comparing to China. So there is a wind that can help China to improve the price in the steel market. And as a combination of all of this, we have a tepid or really tepid margins steel mill. So with all this, we have this wait and see behavior, we have old inventors are really low. So in our perspective in short-term, we can see a rebound, we have this next holiday that is coming out and they will need to replenish the supply chain.”
But as the Federal Reserve mulls a pause on rate hikes, the economy might get back to normal, giving a boost to the materials sector. In December, Goldman Sachs predicted that commodities could give investors over 40% returns in 2023. The firm at the time said that it was expecting the first quarter to be “bumpy” for the sector amid weakness in China and the US. However, the firm was expecting the sector to benefit from the shortage of commodities after the first quarter.
Photo by Shane Cottle on Unsplash
Methodology
For this article, we scanned Insider Monkey’s database of 943 hedge funds and picked 13 basic materials stocks with the highest number of hedge fund investors. Some notable names in the list include Linde plc (NYSE:LIN), Freeport-McMoRan Inc. (NYSE:FCX) and Newmont Corporation (NYSE:NEM).
Best Basic Materials Stocks to Buy Now
13. Southern Copper Corporation (NYSE:SCCO)
Number of Hedge Fund Holders: 16
Southern Copper Corporation (NYSE:SCCO) in April posted its Q1 results. Net income in the quarter increased 3.6% year over year to $813.2 million. Revenues jumped about 1%.
Insider Monkey’s database of 943 hedge funds shows that 16 hedge funds had stakes in Southern Copper Corporation (NYSE:SCCO) at the close of the fourth quarter of 2022, compared to 19 funds in the previous quarter. The most significant shareholder of Southern Copper Corporation (NYSE:SCCO) was Citadel Investment Group of Ken Griffin which owns a $20 million stake in the company.
12. Vale SA (NYSE:VALE)
Number of Hedge Fund Holders: 28
Mining company Vale SA (NYSE:VALE) is trading in the red as of May 9 as the company posted weak Q1 results on the back of lower iron ore fines revenue. Net income from continuing operations in the first quarter fell about 59% to $1.8 billion from $4.5 billion posted in the same quarter last year.
As of the end of the fourth quarter of 2022, 28 hedge funds had stakes in Vale SA (NYSE:VALE). The biggest hedge fund stakeholder of Vale SA (NYSE:VALE) was GQG Partners of Rajiv Jain which owns a $363 million stake in the company.
11. BHP Group (NYSE:BHP)
Number of Hedge Fund Holders: 28
Australia-based mining giant BHP Group (NYSE:BHP) ranks 11th in our list of the best basic materials stocks to buy now according to hedge funds. In addition to several organic growth catalysts, what makes BHP Group (NYSE:BHP) attractive in the current environment is over a decade of consistent dividend payments. Perhaps that’s why hedge funds upped their bets on the stock in the fourth quarter.
Out of the 943 hedge funds tracked by Insider Monkey, 28 funds reported owning stakes in BHP Group (NYSE:BHP) at the end of the fourth quarter of 2022, up from 20 funds that had stakes in the company at the end of the third quarter.
10. Rio Tinto Group (NYSE:RIO)
Number of Hedge Fund Holders: 29
Rio Tinto Group (NYSE:RIO) is a high-yield dividend stock in the basic materials sector with a positive hedge fund sentiment.
In February, Rio Tinto Group (NYSE:RIO) posted Q4 and full-year results. Adjusted EPS in the year came in at $8.19, missing estimates by $0.60. Revenue in the period fell 12.5% year over year to $55.55 billion, beating estimates by $1.02 billion.
A total of 29 hedge funds in Insider Monkey’s database of 943 hedge funds had stakes in Rio Tinto Group (NYSE:RIO) at the end of the fourth quarter of 2022. The biggest stakeholder of Rio Tinto Group (NYSE:RIO) was GQG Partners of Rajiv Jain with a $600 million stake.
9. PPG Industries, Inc. (NYSE:PPG)
Number of Hedge Fund Holders: 31
Paints and coating company PPG Industries, Inc. (NYSE:PPG) has gained about 10% in value over the past 12 months. Last month, JPMorgan upgraded the stock to Overweight from Neutral. JPMorgan analysts believe PPG Industries, Inc. (NYSE:PPG) is positioned to benefit from declining costs of raw materials.
As of the end of the last quarter of 2022, 31 hedge funds tracked by Insider Monkey were long PPG Industries, Inc. (NYSE:PPG). The biggest stakeholder of PPG Industries, Inc. (NYSE:PPG) was First Eagle Investment Management of Jean-Marie Eveillard which owns a $150 million stake in the company.
8. Nucor Corporation (NYSE:NUE)
Number of Hedge Fund Holders: 39
Nucor Corporation (NYSE:NUE) ranks 8th in our list of the best basic materials stocks to buy now. In April Nucor Corporation (NYSE:NUE) jumped after the company posted strong first-quarter results. GAAP EPS in the period came in at $4.45, beating estimates by $0.66. Revenue in the quarter fell 17% year over year to reach $8.71 billion, missing estimates by $160 million. Nucor Corporation (NYSE:NUE) said its earnings in the second quarter are expected to be better than the first quarter.
A total of 39 hedge funds tracked by Insider Monkey have stakes in Nucor Corporation (NYSE:NUE). The biggest stakeholder of Nucor Corporation (NYSE:NUE) is Paul Marshall and Ian Wace’s Marshall Wace LLP which owns a $147 million stake in the company.
7. Air Products and Chemicals (NYSE:APD)
Number of Hedge Fund Holders: 41
With over four decades of consistent dividend increases, Air Products and Chemicals (NYSE:APD) is one of the safest dividend stocks out there. Insider Monkey’s database of 943 hedge funds shows that 41 funds had stakes in Air Products and Chemicals (NYSE:APD) as of the end of the fourth quarter of 2022. The most significant stakeholder of the company was Phill Gross and Robert Atchinson’s Adage Capital Management which owns a $70 million stake in Air Products and Chemicals (NYSE:APD). It is one of the notable stocks in the materials sector, in addition to Linde plc (NYSE:LIN), Freeport-McMoRan Inc. (NYSE:FCX) and Newmont Corporation (NYSE:NEM).
ClearBridge Large Cap Value Strategy made the following comment about Air Products and Chemicals, Inc. (NYSE:APD) in its Q4 2022 investor letter:
“In the materials sector, Air Products and Chemicals, Inc. (NYSE:APD)’s ability to recover higher energy costs, particularly in Europe as it continues to execute on its growth projects, has helped it to generate a positive return for the year and made it a strong contributor. The capital APD is deploying into hydrogen products globally is finally getting noticed as Europe is looking to diversify away from Russian natural gas and the Inflation Reduction Act (IRA) benefits domestic investments in renewables, such as APD’s $4.5 billion blue hydrogen project in Louisiana and its $4 billion green hydrogen production facility in Texas. APD is also teaming up with World Energy to build a $2.5 billion sustainable aviation fuel production facility in Southern California, a project that should also benefit from the IRA.”
6. Dow Inc. (NYSE:DOW)
Number of Hedge Fund Holders: 45
Chemicals giant Dow Inc. (NYSE:DOW) is one of the best basic materials stocks to buy now according to hedge funds. During the first quarter, Dow Inc. (NYSE:DOW)’s EPS came in at $0.58 beating estimates by $0.21.
Like Linde plc (NYSE:LIN), Freeport-McMoRan Inc. (NYSE:FCX) and Newmont Corporation (NYSE:NEM), hedge funds are loading up on DOW.
In its earnings call, answering a question about the company’s performance materials sector, Dow Inc. (NYSE:DOW)’s management said:
“They [performance materials] — obviously, we had some headwinds, obviously, in the fourth quarter in silicones with some outages that did not recur in the first quarter. So that was part of the impact. The other thing you would see in silicones was that, pricing and demand held up relatively well. Some pressure downward on siloxanes pricing in China from new capacity additions there. But I think we’re starting to see that the demand is picking up and that should help smooth things out. So you also saw higher net sales in coatings and monomers and also higher volumes. Some of its supply availability, as I mentioned in silicones and siloxanes, the other is getting ready for seasonally higher volumes going into the second quarter.
And then we think we’ll see more of a traditional seasonal pickup in the coatings and monomers segment. Some pressure on architectural coatings, but industrial coatings are looking relatively strong. And I think we’ll have to watch carefully what’s going on with housing starts and housing sales and see how that impacts architectural coatings through the quarter.”
5. Albemarle Corporation (NYSE:ALB)
Number of Hedge Fund Holders: 46
Chemicals manufacturing company Albemarle Corporation (NYSE:ALB) shares were upgraded recently by BofA to Neutral from Underperform. BofA set a $200 price target on the stock. BofA analyst Matthew DeYoe believes lithium prices could rally on the back of the demand from the EV industry, among other factors.
A total of 46 hedge funds tracked by Insider Monkey have stakes in Albemarle Corporation (NYSE:ALB). The biggest stakeholder of Albemarle Corporation (NYSE:ALB) during this period was Ken Griffin’s Citadel Investment Group which owns a $115 million stake in the company.
4. Newmont Corporation (NYSE:NEM)
Number of Hedge Fund Holders: 50
Earlier this month, Bloomberg reported that Newcrest Mining’s board was prepared to recommend a takeover offer from Newmont (NYSE:NEM) to its shareholders. Newmont Corporation (NYSE:NEM) in April put in a non-binding offer to buy Newcrest in a deal that valued the Australian mining company Newcrest a A$29.4 billion.
A total of 50 hedge funds in Insider Monkey’s database of 943 funds had stakes in Newmont Corporation (NYSE:NEM) as of the end of the fourth quarter. The biggest stakeholder of Newmont Corporation (NYSE:NEM) was First Eagle Investment Management of Jean-Marie Eveillard which had an $868 million stake in the company.
3. Linde plc (NYSE:LIN)
Number of Hedge Fund Holders: 56
Chemicals giant Linde plc (NYSE:LIN) is one of the most notable stocks in the basic materials sector. Last month Linde plc (NYSE:LIN) posted strong Q1 results. Adjusted EPS in the period came in at $3.42, beating estimates by $0.28. Revenue in the quarter was $8.2 billion, in-line with the estimates.
As of the end of the fourth quarter of 2022, 56 hedge funds had stakes in Linde plc (NYSE:LIN). The biggest stakeholder of Linde plc (NYSE:LIN) during this period was Ian Simm’s Impax Asset Management which owns a $945 million stake in the company.
Madison Funds made the following comment about Linde plc (NYSE:LIN) in its fourth-quarter 2022 investor letter:
“Linde plc (NYSE:LIN) stock was strong during the fourth quarter following a solid third quarter. Linde remains well positioned with the passage of the Inflation Reduction Act and energy transition with carbon dioxide sequestration opportunities, gasification services, and various hydrogen projects. Linde and Schlumberger announced that they entered into a collaboration of carbon capture, utilization, and sequestration (CCUS) projects to accelerate decarbonization solutions across industrial and energy sectors. The collaboration will combine decades of experience in carbon dioxide capture and sequestration. The collaboration will focus on hydrogen and ammonia production where carbon dioxide is a by-product. The International Energy Agency estimates that 6 Gigatons of carbon dioxide will need to be abated with CCUS in order to reach net zero by 2050. During the quarter, Linde also announced that it became a signatory to the United Nations Global Compact (UNGC), the world’s largest corporate sustainability initiative. As a signatory, Linde has committed to aligning its strategy and activities with the UNGC’s Ten Principles across human rights, labor, environment, and anti-corruption.”
2. The Sherwin-Williams Company (NYSE:SHW)
Number of Hedge Fund Holders: 64
Ranking 2nd in our list of the best basic materials stocks to buy now is The Sherwin-Williams Company (NYSE:SHW). The paint and coatings company last month posted upbeat first quarter results. Adjusted EPS in the quarter was $2.04, beating estimates by $0.25. Revenue in the period increased by 8.8% year over year to $5.44 billion, surpassing estimates by $300 million.
Insider Monkey’s database of 943 hedge funds shows that 64 hedge funds had stakes in The Sherwin-Williams Company (NYSE:SHW) at the end of the fourth quarter of 2022.
ClearBridge Large Cap Growth Strategy made the following comment about The Sherwin-Williams Company (NYSE:SHW) in its Q4 2022 investor letter:
“A third approach to return generation is purchasing idiosyncratic businesses that largely control their own destiny. We saw mixed results from this group in the fourth quarter, with paint and coatings maker The Sherwin-Williams Company (NYSE:SHW) benefiting from significant pricing power that will allow it to grow earnings handsomely with only modest revenue increases. “
1. Freeport-McMoRan Inc. (NYSE:FCX)
Number of Hedge Fund Holders: 68
Freeport-McMoRan Inc. (NYSE:FCX) in April posted first-quarter results that beat estimates on both earnings and revenue. But the revenue showed a massive decline year over year, mainly because of rains in February at the Grasberg mine in Indonesia.
As of the end of the last quarter of 2022, 68 hedge funds were piled into the company with stakes worth $3.3 billion, according to Insider Monkey’s database. The biggest stakeholder of Freeport-McMoRan Inc. (NYSE:FCX) was Ric Dillon’s Diamond Hill Capital which owns a $415 million stake in the company.
Diamond Hill Large Cap Strategy made the following comment about Freeport-McMoRan Inc. (NYSE:FCX) in its Q4 2022 investor letter:
“Other top contributors during the quarter were copper producer Freeport-McMoRan Inc. (NYSE:FCX) and health care facilities operator HCA Healthcare. With little fundamental news to report, Freeport-McMoRan’s share price advance in Q4 reflected a rebound in copper prices, driven by the recognition that copper inventories are low relative to historical norms. We believe the company continues to have meaningful price and volume leverage in a copper constrained world.”
You can also take a peek at 20 Fastest-Growing Cities in the Southeast and 25 Best US Cities for People With Allergies.
Suggested articles:
- 10 Best Diversified Bank Stocks to Buy Now
- 10 Best Fast Food Stocks to Invest In
- 15 Most Tax-Friendly Countries in Europe
Disclosure: None. 13 Best Basic Materials Stocks to Buy Now is originally published on Insider Monkey.
