One of the most overlooked sectors in the market, basic materials stocks have become an attractive sector for investors.
Materials are a broad space that can include everything from metals, to plastics, as well as concrete and fertilizer. It can include companies that just extract raw commodities to those that refine commodities into higher-value goods like specialty chemicals.
While it’s true that materials stocks may lack the fast growth of a tech stock or the perceived safety of a consumer goods company, this space has become a pocket of deep value. The massive economic contraction at the start of the year hit these stocks hard. But now, easy-money economic policies and a rebounding global economy bode well for the sector.
“We raised our recommended exposure to the S&P 500 Materials sector to overweight from marketweight,” writes CFRA’s Sam Stovall. “We think defensive sectors will become relative underperformers in the period ahead as cyclical sectors will likely be boosted by the apparent outcome of the presidential election” as well as Pfizer’s (PFE) encouraging data from its vaccine trial.”
“The Materials sector is also expected to record 2021 EPS growth of 27.4%, according to S&P Capital IQ’s consensus estimates, vs. the S&P 500’s projected 21.2% growth rate,” he adds.
Investors looking to take profits into an overlooked and unloved sector should look no farther than this short list of the five best materials stocks for 2021. Next year likely will be a great one for the sector amid expectations for rebounding profits and expanding margins.