We recently compiled a list of the 12 Best Basic Materials Stocks to Buy According to Analysts. In this article, we are going to take a look at where Cleveland-Cliffs Inc. (NYSE:CLF) stands against the other basic material stocks.
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.
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).
A welder in a hardhat soldering steel plates to a blueprint plan.
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.
Overall CLF ranks 10th on our list of the best basic material stocks to buy according to analysts. While we acknowledge the potential of CLF as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than CLF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.