In this article, we will discuss the 12 Best Basic Materials Stocks to Buy According to Analysts.
Fitch Ratings sees a stable demand environment for North American building products and materials companies heading into 2025. This is expected to be aided by a rebound in residential remodel activity, a rise in US housing starts, and robust public construction spending amidst a slowdown in non-residential construction activity. The rating agency went on to say that building products companies garnering significant revenues from repair and remodel projects can outperform as declining interest rates fuel demand recovery.
What Lies Ahead for Steel and Commodity Chemicals?
Fitch Ratings expects a modest growth in steel output demand in North America and Europe in 2025. The rating agency anticipates that lower raw material costs in 2025 and companies’ strategic investments focused on expanding higher-margin value-added production and additional new low-cost capacity to meet demand would offer some margin support. As a result of Trump’s tariffs, Fastmarkets believes that the domestic steel industry might reap some benefits from the approach. The domestic steelmakers were in an advantageous position from the Section 232 actions which were first implemented in 2018, leading to higher steel prices and margins. As per Samir Kapadia, principal and chief operating officer at the Vogel Group (an international government affairs and consulting firm), steel prices are expected to go up, and it will be a good year for the US steel industry.
Commodity chemicals producers face higher operating leverage because a marginal volume decrease results in reduced capacity utilization, impacting profits. This happened in the past year as lower volumes and reduced capacity utilization adversely impacted the producers’ profit. However, since demand saw an improvement in H2, capacity utilization followed the lead. Morningstar projects that demand will continue to recover in 2025, resulting in increased volumes and better utilization rates. This is expected to support a recovery in profit for producers.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Lithium Prices to Rise in 2025, Says Morningstar
The energy transition revolves around a broader lithium market, fueled by strong demand for EVs. Morningstar sees that lithium demand has been increasing from higher global EV sales and the buildout of utility-scale batteries utilized in energy storage systems. Over the near term, the firm expects increased average prices in 2025 as supply cuts are expected to move the market closer to balance, pushing the prices higher, mainly in H2. Over the medium term, Morningstar anticipates prices to average $20,000 per metric ton.
With this in mind, let us now have a look at the 12 Best Basic Materials Stocks to Buy According to Analysts
A 360 degree view of a partially constructed tower, featuring various pieces of equipment and constructionmaterials.
Our Methodology
To list the 12 Best Basic Materials Stocks to Buy According to Analysts, we used a screener to filter out the stocks catering to the basic materials sector. Next, we chose the ones in which analysts saw upside potential. Finally, the stocks were arranged in ascending order of their average upside potential, as of February 7. We also mentioned hedge fund sentiments around each stock, as of Q3 2024.
At Insider Monkey we are obsessed with 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
12 Best Basic Materials Stocks to Buy According to Analysts
12) Martin Marietta Materials, Inc. (NYSE:MLM)
Average Upside Potential: 24.4%
Number of Hedge Fund Holders: 44
Martin Marietta Materials, Inc. (NYSE:MLM) is a natural resource-based building materials company, engaged in supplying aggregates and heavy-side building materials to the construction industry. Wolfe Research upped the company’s stock from “Peer Perform” to “Outperform,” while providing a new price objective of $563.00. As per the research firm, amidst concerns regarding the potential impact of elevated interest rates on construction demand and inflation affecting spending, an improvement is expected in the construction activity in H2 and into 2026. This can strengthen sustained pricing power and margin expansion for Martin Marietta Materials, Inc. (NYSE:MLM).
A renewed focus on infrastructure development is expected to result in higher demand for aggregates and construction materials, aiding the company’s core business. Talking about deregulation, reduced regulatory burdens can reduce compliance costs and streamline project approvals. This can result in increased construction activity, fueling Martin Marietta Materials, Inc. (NYSE:MLM)’s growth prospects.
Notably, Wolfe Research’s outlook demonstrates that the US Fed’s rate cut strategy is expected to play a critical role in assessing the timing of the private sector’s recovery. Baron Funds, an investment management company, released its Q2 2024 investor letter. Here is what the fund said:
“In the second quarter, we acquired shares in Martin Marietta Materials, Inc. (NYSE:MLM), a leading producer of aggregates (77% of gross profit) and specialty products. The company’s products are sold and utilized in infrastructure projects such as highways, as well as residential and non-residential construction. Martin Marietta has local leadership positions across its footprint.
We believe aggregates are an attractive business for two main reasons: High barriers to entry limit new competition: Permits to open new quarries are difficult to obtain, and the approval process typically takes 5 to 10 years. Martin Marietta has more than 75 years of aggregates reserves at its current extraction rates. Consistent pricing power through cycles: Aggregates producers have historically enjoyed great pricing power owing to the difficulty in opening competing new quarries, the limited substitutes for quality aggregates, and a high weight-to-price ratio that makes transportation expensive relative to the cost of the material. In the last 30 years, pricing of aggregates has increased, on average, 4% per year…” (Click here to read the full text)
11) Rio Tinto Group (NYSE:RIO)
Average Upside Potential: 25.9%
Number of Hedge Fund Holders: 30
Rio Tinto Group (NYSE:RIO) is engaged in exploring, mining, and processing mineral resources. The company is optimistic about the Australian Government’s announcement related to an aluminium production credit to help sustain and grow aluminium smelting in Australia, and advance both regional communities and the nation’s manufacturing capabilities. With global industrial customers and consumers focusing on low-carbon products, this support hints at Australia’s potential to be counted as a leading supplier of aluminium required for the global energy transition, creating an environment supportive of local businesses and manufacturing.
This announcement builds on Rio Tinto Group (NYSE:RIO)’s partnership with the Queensland Government to support Boyne Smelters Ltd’s transition to renewable energy, and Rio Tinto Group (NYSE:RIO)’s robust progress in securing renewable power to offer competitively priced electricity for the aluminium operations. Furthermore, Rio Tinto Group (NYSE:RIO) remained optimistic about the announcement as it has 51.55% interest in Tomago Aluminium Company and focuses on working with the New South Wales Government to help secure the future of that operation.
The company is expected to benefit from higher iron ore demand due to global infrastructure projects. Furthermore, given the favourable demand trends for aluminium, stemming from EVs, aerospace, and lightweight construction, Rio Tinto Group (NYSE:RIO) is well-placed to benefit from higher aluminium prices.
10) Cleveland-Cliffs Inc. (NYSE:CLF)
Average Upside Potential: 29.4%
Number of Hedge Fund Holders: 40
Cleveland-Cliffs Inc. (NYSE:CLF) operates as a flat-rolled steel producer in North America. The company’s evolution is dictated by a dual focus on operational efficiency and strategic acquisitions such as AK Steel, ArcelorMittal USA, and Stelco. Notably, these acquisitions have cemented Cleveland-Cliffs Inc. (NYSE:CLF)’s position as a low-cost steel producer with a vertically integrated model to include iron ore mining, steel manufacturing, and coke processing.
GLJ Research analyst Gordon Johnson upgraded the company’s shares from “Sell” to “Buy,” providing a price objective of $14.27. The upgrade stemmed from the expectations of the implementation of tariffs and typical seasonal strength in the broader steel sector. As per the analyst, these policies are expected to be applied to numerous industries, which include steel, which can fuel US Hot-Rolled Coil prices in the near term. Moreover, the analyst highlighted the historical seasonal trends favouring the broader steel industry from January to April.
Cleveland-Cliffs Inc. (NYSE:CLF) has seen improvements in its order book, both automotive and non-automotive, and the company expects that the manufacturing-friendly items on President Trump’s agenda will have an outsized benefit. The company remains focused on working with the Trump administration on further tariff action to come on steel specifically.
