Thinking about investing in stocks that form the foundation for many of the world’s most important industrial products?
Investing in materials stocks could be for you. In this lesson, we’ll explain what materials stocks are, what their typical characteristics are, and where to find more information about them. You’ll also find a list of materials stocks that sport remarkable recent price performance and strong fundamentals that make them attractive investment opportunities.
What are materials stocks?
Materials stocks are stocks of companies that make industrial products fashioned from raw materials such as metal, oil, and chemicals.
Why do investors look for materials stocks?
As with any investment, investors want to see strong performance over time and potential for growth in the future with materials stocks. Some of the biggest materials stocks spent decades as components in the Dow Jones Industrial Average, which is an indicator as to how economically fundamental they are. Though materials stocks don’t come to mind as quickly anymore when we think of blue-chip stocks, these companies still produce materials that are essential for industrial use.
What are the defining characteristics of materials stocks?
1) They include some of the most prominent stocks of the 20th century
As we’ll see in the highlighted stocks section of this article, some of the biggest and best known materials companies played integral roles in advancing the Industrial Revolution and the huge economic growth of the 1900s. These stocks aren’t as sexy anymore, but they still retain some of that old luster, especially among old-money institutional investors.
2) They’re not as profitable as leading tech Stocks
Technology stocks that rely on actions such as transmitting and storing data along wireless networks or in the cloud have lower overheads and can be more flexible than materials stocks. These companies won’t spend as much on operations costs as the chemical companies that make more tangible products in factories. The result is lower profit margins for materials stocks when compared to more modern industries, but in exchange for this you often see lower levels of volatility with materials stocks.
3) They usually move in step with the economy
When global economies thrive, companies and governments tend to build more aggressively, which increases demand for materials, thereby boosting materials stocks. When recessions hit, demand dries up, and so too does materials stocks’ performance.
4) They often issue dividends
Like many slower-moving stock types, materials stocks often devote a portion of their profits to investor dividends. These dividends are most often issued quarterly, though you’ll sometimes see dividends given out monthly, biannually, or annually.
Here are some examples
If you’re interested in adding some materials stocks to your portfolio, here’s a quick summary of four of the biggest stocks you might consider.
1) Dow Chemical (DOW)
One of the 30 components on the Dow Jones Industrial Average, Dow merged with fellow chemicals giant DuPont in 2017. In March 2020 the stock plunged to its lowest point in more than six years. As of June 10 it had rebounded nearly 30% from that point.
2) Corteva (CTVA)
Staying in the DowDupont family, Corteva was the company’s agricultural unit before spinning off to become its own publicly traded stock in 2019. The largest agricultural stock in the world, Corteva sports a dividend yield of 1.9%.
3) FMC (FMC)
Staying in the agricultural sector, FMC is a leading producer of herbicides, insecticides, and agricultural chemicals. Bouncing back from the stock market slump caused by COVID-19 and related global lockdowns, FMC’s stock nearly doubled from its March 18th, 2020 low to its June 9th, 2020 high.
4) Newmont (NEM)
Newmont is the world’s largest gold mining company. In mid-May 2020 Newmont’s stock reached its highest point in nearly a decade. It pulled back in the month that followed, but is still a solid investment possibility.
How do I find materials stocks?
Investment websites such as MarketWatch and Yahoo Finance offer screening tools to help you find the best materials stocks, based on parameters such as earnings growth, price-to-earnings ratio, and dividend yield. But you don’t need to go anywhere, as we also offer monthly lists of leading materials stocks right here at Invezz.com.
Visit this guide for more information on how to find materials stocks >
Congratulations, you’ve successfully completed the stock types course. Continue onto the final wrap-up lesson.