We recently compiled a list of 10 Best Basic Materials Stocks To Buy Now. In this article, we will look at where United States Steel Corporation (NYSE:X) ranks among the best basic materials stocks to buy now.

The specialty chemicals industry holds the highest market weight (41.75%) among the several industries that make up the basic materials sector, despite its modest year-to-date return of 7.20%. Among the top performers in this industry are copper and gold, which had YTD returns of 28.25% and 28.32%, respectively. Additionally, building materials have grown rapidly, yielding a 19.46% YTD return. Nonetheless, several sectors of the economy are struggling. For example, steel and agricultural inputs have negative year-to-date returns of 13.78% and 2.08%, respectively. Coking coal lags with a YTD return of -19.12%, while other top performers include aluminum (33.03%), other precious metals & mining (48.76%), and silver (42.01%). Lastly, the chemicals industry has achieved a 3.17% YTD return. Overall, all industries in the basic materials sector experienced a 10.40% YTD return.

Amidst the basic material sector’s growth, as per Deloitte’s, the future of materials insights: science and technology have advanced to the point where scientists can now design materials with specific purposes, which fosters innovation in the chemical industry. Stakeholders are pressing companies to reassess the life cycle of their products with an emphasis on lowering emissions as sustainability gains prominence. Offering products to companies that make electric vehicles rather than those that make internal combustion engines, for instance, might drastically reduce scope 3 emissions. Involvement in circular ecosystems provides a viable way to reduce waste and provide new value opportunities. Although there are still obstacles to overcome, bio-based feedstocks have the potential to lower emissions and improve supply chain resilience. Furthermore, by solving the shortcomings of conventional mechanical recycling techniques, circular solutions like chemical recycling and carbon capture and utilization (CCU) offer creative end-of-life possibilities for materials.

Meanwhile, according to Fidelty, the financial services corporation, the materials market affected by recession worries, which is strongly tied to the economic cycle, produced solid but slow returns over the previous year. It follows general economic patterns in rising and falling levels as a cyclical industry. Materials stocks have been undervalued as the economy stands on the verge of a recession. A more positive economic picture in 2024, though, would act as a spur to expansion. Early phases of economic recovery have historically seen strong performance from this industry, and favorable supply-demand dynamics, especially among copper miners and American chemical manufacturers, could offer long-term investment opportunities. The industry may perform better as the economic cycle develops, setting it up for a potential comeback. As per Ashley Fernandes, Fidelity Sector Portfolio Manager:

“This cyclical sector could be well positioned if or when the economy improves.”

However, the ING Group, in its 2024 outlook report for the materials sector, pointed out the possible risks for iron ore:

“Looking further ahead, downside risks include China looking to replace older steel capacity with electric arc furnace capacity in order to help the country meet its decarbonisation goals. Growth in electric arc furnace (EAF) capacity at the expense of basic oxygen furnace (BOF) capacity will be a concern for the medium to long-term outlook for Chinese iron ore demand, reflecting increasing secondary production. Currently, 9.5% of China’s steel capacities are electric steel mills. The country plans to increase the share of steel from EAFs to 15% by 2025 amid a drive to reduce carbon emissions, increasing its appetite for ferrous scrap. China aims to achieve carbon neutrality by 2060.”

Methodology:

We sifted through holdings of Basic Materials ETFs and online rankings to form an initial list of 20 Basic Materials stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. We have used the stocks’ market cap as a tie-breaker in case two or more stocks have the same number of hedge funds invested.

Why are we interested in 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)

United States Steel Corporation (NYSE:X)

Number of Hedge Fund Investors: 58 

Market Capitalization as of October 10, 2024: $8.02 billion

Although it maintains a steelmaking facility in Slovakia, United States Steel Corporation (NYSE:X)  mostly operates in the United States. North American Flat-Rolled (Flat-Rolled), Mini Mill, U. S. Steel Europe (USSE), and Tubular Products (Tubular) are the company’s operating segments. The Flat-Rolled segment comprises all iron ore and coke production facilities in the United States, as well as the integrated steel plants and equity investors of U. S. Steel in North America that produce slabs, strip mill plates, sheets, and tin mill products. Its main clientele is in the North American service center, conversion, construction, appliance, container, and electrical markets.

U.S. Steel was raised by JPMorgan analyst Bill Peterson from Neutral to Overweight, with a price objective of $42, up from $40. The firm believes the risk/reward is better for North American steel shares “as investors will begin to positively discount an improved rate environment and stable post-election backdrop in 2025” after a period of underperformance amid declining fundamentals. The analyst believes that U.S. Steel and Nucor are best positioned for growth in the upcoming year. The recent decline in United States Steel Corporation (NYSE:X) stock, according to JPMorgan, “represents an attractive buying opportunity on standalone valuation support.”

The company released its third-quarter 2024 projection, estimating adjusted EBITDA of around $300 million and adjusted net profits per diluted share of between $0.44 and $0.48. The company anticipates strong domestic flat-rolled steel demand despite the difficult pricing environment, and it is reducing pricing concerns with a varied order book in North America. While the Tubular industry struggles with low costs, the Europe segment expects softer demand. Supported by strong community and employee support, U.S. Steel is also moving forward with strategic investments such as the Big River 2 start-up and the deal with Nippon Steel.

Matthew Halbowe’s Pentwater Capital Management is the largest stakeholder in the company from among the funds in Insider Monkey’s database. It owns 20,210,000 shares worth $763.93 million as of Q2.

Overall X ranks 7th on our list of the best basic material stocks to buy now. While we acknowledge the potential of the X as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than X but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published on Insider Monkey.