We recently compiled a list of the 11 Best Materials Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Linde plc (NASDAQ:LIN) stands against the other material stocks.
Materials stocks are those companies that produce chemicals, construction materials, and paper products. Businesses involved in the exploration and processing of commodities are also included in this sector.
Materials demand is cyclical, rendering sector players extremely vulnerable to economic fluctuations. The demand for basic materials tends to drop when economic conditions deteriorate, which lowers prices and impacts the profitability of material producers. However, the materials sector can be impacted by a variety of factors, including the economic cycle. Supply chain challenges, legislation, and inflation are just a few of the many factors that could impact demand, prices, and industry profitability in the materials industry.
After Russia invaded Ukraine in 2022, a new challenge arose in the industry. The region provides essential metals for steel production and exports minerals for fertilizer, such as potash; therefore, the war caused disruptions in the worldwide supply chain for resources. Most basic materials’ costs increased due to supply constraints, which had a significant impact on both the industry and the overall economy.
Looking forward, a cautiously positive view for the materials sector in 2025 has been strengthened by long-term structural demand and improved macroeconomic conditions. Persistent economic concerns in the United States and a noticeable slowdown in China, two important markets for industrial materials, burdened the sector in 2024. However, according to Fidelity, the situation seems more favorable for growth in 2025 as China implements economic stimulus measures and central banks in major economies currently lean toward monetary easing. Some subsectors stand to benefit from both a short-term cyclical recovery and advantageous long-term supply-demand imbalances, especially those related to copper and other crucial inputs for infrastructure and electrification. Furthermore, the sector’s rate-sensitive industries, such as chemicals, may gain from lower interest rates, while more robust, high-quality firms may provide defensive strength. The sector is positioned for a potentially better performance in 2025 due to a combination of financial assistance, a possible recovery in Chinese demand, and strategic exposure to growth-linked materials.
Currently, according to a strategist for equity derivatives at Barclays, Stefano Pascale, options traders are undervaluing the risks associated with materials stocks because the sector’s predicted volatility is close to historic lows, making downside protection cheap. Steel and paper companies are among the materials stocks that are susceptible to tariffs because of their dependence on international supply chains, and additional tariffs are anticipated to be announced soon by President Trump.
Despite this, Pascale commented:
“The volatility market is giving you an exceptionally good opportunity here of cheap materials puts. Even if you didn’t have a trade war, this would be, historically speaking, a very attractive trade.”
Materials underperformed in 2018 due to Trump’s tariffs, and similar drops may be seen this year, with the Dow down 7%. According to statistics provided by Bloomberg Intelligence, sell-side analysts have lowered their expectations for the material sector, anticipating earnings to climb 5.9% this year, down from an estimate of 16% in January. However, traders must consider liquidity risks, as the bid-ask spread for materials options is $0.20, as opposed to $0.04 for broader market options.
Methodology
We sifted through the Materials ETFs and online rankings to form an initial list of the 25 materials stocks. From the resultant dataset, we chose 11 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 1009 hedge funds in Q4 2024 to gauge hedge fund sentiment for stocks.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A scientist in a lab coat inspecting a cylinder filled with industrial gas.
Linde plc (NASDAQ:LIN)
Number of Hedge Fund Holders: 70
Linde plc (NASDAQ:LIN) is the world’s biggest industrial gas provider, operating in over 100 different countries. The company’s primary products include equipment for industrial gas production, process gases (such as hydrogen, carbon dioxide, and helium), and atmospheric gases (such as oxygen, nitrogen, and argon). It provides services to various end markets, including steelmaking, manufacturing, chemicals, and healthcare. In 2024, the firm made around $33 billion in revenue. It is among the best materials stocks.
In 2024, the business achieved impressive success, investing $2 billion in the DOW (Canada) project for low-carbon (blue) hydrogen generation and landing over 59 modest on-site contracts for sustainable energy provision. Over 40% of Linde plc (NASDAQ:LIN)’s overall power consumption is now low-carbon, with the company increasing its active low-carbon and renewable energy usage by 19% year over year. The business made $4.8 billion in total investments in its operations. The operating margin improved to 29.5%, a 190-basis-point improvement from 2023, while annual sales hit $33 million, a modest increase from $32 million in 2023.
In 2024, Linde plc (NASDAQ:LIN) generated a healthy $9.4 billion operating cash flow. After deducting new issuances, the firm disbursed $7.1 billion to shareholders in dividends and share repurchases and set aside $4.5 billion for capital expenditures. For the last 31 years in a row, the company has been paying out growing dividends to its stockholders.
Overall, LIN ranks 4th on our list of the best materials stocks to buy according to hedge funds. While we acknowledge the potential of LIN as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than LIN but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
READ NEXT: 20 Best AI Stock To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
