By producing the raw building blocks of most products, material sector stocks have the potential to be relevant to all businesses; at the same time, infrastructure spending could also boost the output of this sector in 2022.
During economic downturns, material stocks usually lose their luster like most stocks do; however, with the rise of inflation, the war in Ukraine, and stressed supply chains, the prices of materials have skyrocketed.
Needless to say, these developments bode well for material stocks, with reliable cash flows and strong dividends. Keeping this in mind, Finbold has identified three material stocks that are currently doing well in the market and that investors might consider adding to their watch lists. United States
Steel Corporation (NYSE: X)
The spot price for hot-rolled coil, a steel benchmark product, is up more than 200% from the 2020 lows, which the Pandemic induced. With the Biden administration mandating the use of U.S.-made steel X will likely benefit even more.
In 2021 the company repurchased $150 million in common stock authorizing another $500 million repurchase program in 2022. Earnings before taxes for the full year were $5.59 billion with $2.52 billion of cash on hand.
The shares have exploded over 70% from March until April 20, leaving all daily Simple Moving Averages far behind, possibly creating resistance lines far above the $30 mark. Volumes have been dropping in April, but the stock has been trading steadily in the last couple of sessions.
Analysts have a hold rating on the stock, with the predicted average price for the next 12 months passed in late March. The current trading price of $37.78 is roughly 11% below the most bullish prediction for the share price of $42.75.
CF Industries Holdings (NYSE: CF)
Gas is the main raw material and primary fuel source used in the ammonia production process of nitrogen which the company utilizes. With gas prices skyrocketing in Europe due to the war in Ukraine, competitors of CF will have to raise prices, while on the other hand, gas prices in the U.S. have remained pretty much stable, putting CF in the driver’s seat.
The company holds $1.6 billion in cash, with free cash flow in Q4 of 2021, amounting to $200 million. Strong growth and predicted future growth with competitors fighting off rising costs make CF a completing company to track.
Market participants tracked difficulties the competitors had and were bidding up the share price with the stock currently trading at all-time highs. After volume spikes in March, the average trading volumes are starting to creep in, possibly holding the price in place.
Analysts give the stock a moderate buy predicting that the average price for the next 12 months will be $98.28, while the current trading price is already at $107. The most bullish price target is at $131, which could easily be reached if global issues are prolonged.
Alcoa Corp (NYSE: AA)
Alcoa and aluminum prices have been on a tear since the pandemic period; the shares have returned 1,500% from the pandemic-induced lows. Additionally, the company had a blowout in Q4 2021, with revenues increasing 40% or $948 million.
European smelters are cutting production quotas which means that there is little chance of prices going down abruptly and taking Alco with them.
Shares have currently dipped below the 20-day SMA but are still trading in an ascending channel creating higher highs and higher lows. Volume is not picking up, so price bursts are hard to expect; however, a catalyst could move shares even higher.
Analysts give the stock a moderate buy, and out of the three stocks presented, only AA hasn’t yet reached its predicted next 12 months price, which is $95.91. This predicted price is 10.78% away from the current trading price of $86.58.
Materials stocks are currently on a tear, with inflation and war spurring global worries. Investors that positioned themselves into material stocks during pandemic lows could have benefited from a tremendous runup.
All is not lost, since the war in Ukraine is bringing more price hikes for commodities and production cuts for EU producers. This means that the three mentioned stocks could have more room to run. For investors, it may well be worth keeping an eye on these and determining when is a proper time to jump in.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.