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 Vale S.A. (NYSE:VALE) 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).
Aerial view of a giant iron ore mine, showcasing the mineral deposits of the company’s Ferrous Minerals segment.
Vale S.A. (NYSE:VALE)
Average Upside Potential: 47.8%
Number of Hedge Fund Holders: 41
Vale S.A. (NYSE:VALE) is engaged in producing and selling iron ore, iron ore pellets, nickel, and copper in Brazil and internationally. Analyst Caio Ribeiro from Bank of America Securities maintained a “Hold” rating on the company’s stock. The rating stems from a combination of factors related to the company’s recent performance and market conditions. As per the analyst, Vale S.A. (NYSE:VALE)’s production and sales numbers for iron ore remained largely in line with expectations, although they were marginally below the consensus estimates. Notably, iron ore production totaled 85.3 Mt in Q4 2024, 4.1 Mt lower YoY. Iron ore sales came in at 81.2 Mt, 9.1 Mt (-10%) lower YoY, due to the decision to reduce high-silica products sales in the quarter, improving all-in premiums.
Despite these numbers, the analyst believes that the realized prices for their products, mainly iron ore, exceeded expectations, which contributed positively to Vale S.A. (NYSE:VALE)’s earnings potential. The company’s strategic focus extends to its base metals business, an area where growth opportunities exist despite the recent challenges. With increasing global demand for EVs and renewable energy technologies, the broader long-term outlook for base metals such as nickel and copper is positive. Vale S.A. (NYSE:VALE)’s established presence in such markets places it well to capitalize on future demand growth.
White Falcon Capital Management, an investment fund manager, released its Q4 2024 investor letter and mentioned Vale S.A. (NYSE:VALE). Here is what the fund said:
“While this uncertainty in Brazil has prompted many investors to offload Brazilian stocks, we’ve taken advantage of this environment to establish a position in Vale S.A. (NYSE:VALE). Vale is among the world’s largest and lowest-cost iron ore producers and boasts a growing portfolio of high-demand copper and nickel assets. It is currently trading at a P/E of 5.3x with a 8% dividend yield.”
Overall VALE ranks 2nd on our list of the best basic material stocks to buy according to analysts. While we acknowledge the potential of VALE 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 VALE 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.
