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Materials Sector Stock Winners: Consider These 3 in 2022

Well, it's certainly true that the materials sector is one of the most ho-hum sectors on Wall Street. However, there's no denying that stock mavens perked up at certain points during 2021 when certain materials stocks began to glisten in the limelight. 

Economic recovery from the lingering effects of the pandemic as well as infrastructure changes will ramp up due to Congress' infrastructure bill, which will add $550 billion of federal investments in America's bridges and roads, broadband, water, and energy systems. What will benefit? Exactly — materials stocks.

What is the Materials Sector? 

The materials sector seems a bit more nebulous, doesn't it, than, say, the real estate sector? 

Let's walk through a basic overview of materials stocks and a few sub-sectors within the sector. Materials, often entrenched in commodities, deal in the discovery, extraction, and processing of raw materials. So, what do raw materials actually mean? Here's an example of a few sub-sectors within the materials sector: chemicals, metals and mining, forestry (including paper and construction materials), and containers and packaging.  

As we saw during the height of the pandemic, the materials sector displays unique sensitivity to fluctuations in the global economy, the U.S. dollar, and, unfortunately, the effects of inflation.

  • Chemicals: The chemicals sub-sector transforms raw materials into more than 70,000 diverse products. Several hundred thousand U.S. chemical facilities, from petrochemical manufacturers to chemical distributors, create, manufacture, store, transport, and deliver chemicals along the supply chain, according to the Cybersecurity and Infrastructure Security Agency.
  • Construction materials: Companies involved in construction materials mine, quarry, and process raw materials used for both heavy and building construction. They may use cement, sand and gravel, clay, concrete, and marble.
  • Glass: The glass industry produces sheet glass, optical glass, glass fiber, household glassware, glass containers as well as the glass used in construction, illuminating engineering, and electrical engineering.
  • Paper: Companies that use wood as raw material produce wood pulp, paper, paperboard, and other cellulose-based products.
  • Forest products and related packaging products: Packaging, tissue papers, and pulp for hygiene products and textile applications corner this market. The packaging industry is always looking for new uses for wood and its components. The industry may continuously undergo transformative, never-before-seen changes.
  • Metals, minerals, and mining companies: Metals, minerals, and mining apply to excavating and processing metals, minerals, and other geological resources, including producers of steel.

Materials Stocks to Add to Your List in 2022

What might you consider from this sector this year? Let's take a look at some materials stocks headliners for 2022. 

United States Steel Corporation (NYSE: X)

Even though steel input costs spiked and supply-chain and logistics suffered bumps, the steel industry zipped to all-time highs and experienced strong headwinds in the first three quarters of 2021. As soon as supply improved, steel did hit a bit of a wall.

Even so, we're eyeballing the United States Steel Corporation (NYSE: X), the storied behemoth headquartered in Pittsburgh, Pennsylvania. United States Steel Corp. manufactures and sells steel products through its flat-rolled products (steel slabs, strip mill plates, sheets, iron ore, and more), U.S. Steel Europe (marketing strip mill plates, spiral welded pipe, and heating radiators), and tubular products segments (welded steel casing and tubing, line pipe and mechanical tubing). 

In Q3 2021, U.S. Steel had net earnings of over $2 billion, or $6.97 per diluted share, adjusted net earnings of $1.543 billion, or $5.36 per diluted share, and adjusted EBITDA of $2.027 billion. It has the liquidity to the tune of $4.503 billion, including cash of $2.044 billion.

It could be a great pick for value investors in 2022. 

Cleveland-Cliffs (NYSE: CLF)

Cleveland-Cliffs, formerly known as Cliffs Natural Resources Inc. somewhat of a direct competitor of U.S. Steel, forms the largest flat-rolled steel company and the largest iron ore pellet producer in North America. The vertically integrated company specializes in iron making, steelmaking, rolling, hot and cold stamping of steel parts and components, and more. 

The financial health and growth prospects of Cleveland-Cliffs (revenue growth, lower debt position, and vertically integrated business) show potential for outperformance. Earnings have grown at an incredibly fast pace thanks to a recent acquisition.

Cleveland-Cliffs had record quarterly revenue of $6 billion (compared to prior-year Q3 results of $1.6 billion), net income of $1.3 billion, or $2.33 per diluted share, and record quarterly adjusted EBITDA of $1.9 billion. For the first nine months of 2021, Cleveland-Cliffs recorded revenues of $15.1 billion and net income of $2.1 billion, or $3.69 per diluted share, compared to $3.1 billion in the first nine months of 2021 and a net loss of $155 million or a loss of $0.51 per diluted share.

Materials Select Sector SPDR ETF (NYSE ARCA: XLB)

If you want exposure to materials stocks through a broader slice of the materials market, consider the diversified exchange-traded fund (ETF) Materials Select Sector SPDR ETF (XLB).

Its top holdings include the following companies (which might also give you some ideas on stocks to add to your portfolio): 

  • Linde plc (NYSE: LIN)
  • Sherwin-Williams Company (NYSE: SHW)
  • Freeport-McMoRan Inc. (NYSE: FCX)
  • Air Products and Chemicals Inc. (NYSE: APD)
  • Ecolab Inc. (NYSE: ECL)
  • Newmont Corp. (NYSE: NEM)
  • Dow Inc. (NYSE: DOW)
  • DuPont de Nemours Inc. (NYSE: DD)
  • PPG Industries Inc. (NYSE: PPG)
  • International Flavors and Fragrances Inc. (NYSE: IFF)

Managed by State Street Global Advisors, the Materials Select Sector SPDR ETF manages assets over $8 billion and low costs, transparency, flexibility, and tax efficiency. Annual operating expenses for this ETF are 0.12%, one of the least expensive products in the sector. If you're in it for the long haul and prefer a diversified approach, this ETF may be your ticket.

Select the Right Materials Stocks for Your Portfolio

Convinced materials stocks are the way to go? Consider all the implications and pick up a few of these solid options through your brokerage. Materials stocks can also help you pick your way through inflation — excellent news when the inflation reports are so dour.

Should you invest $1,000 in United States Steel right now?

Before you consider United States Steel, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and United States Steel wasn't on the list.

While United States Steel currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The 5 Stocks Here

Companies Mentioned in This Article

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