A big part of long-term investing success is keeping an open mind and looking into which sectors are showing strength, even if they aren’t necessarily the ones that receive the most attention in the financial media. This is the case with the materials sector, which tends to fly under the radar for many investors. These are companies that provide materials like plastics, metals, concrete, chemicals, natural resources, and fertilizers that all play a crucial role in the global economy. When you stop to think about it, almost all of the products and services that you can buy today are made from at least one of these materials. That’s a big reason why investors should be interested in the sector, as a lot of these companies will always have a steady demand for their products.
Many of these stocks offer earnings growth potential as the global economy rebounds and are trading at attractive valuations at this time. It never hurts to add some diversification to your investment portfolio, and there are plenty of signs that the sector could be in for a strong year. Let’s take a look at the top 3 materials stocks to buy for 2021.
Chemours Co
You probably haven’t heard of this midcap materials company, but it’s worth a look for several reasons at this time. Chemours Co (NYSE:CC) is a global leader in performance chemicals, which are essential for numerous industries including plastics and coatings, refrigeration and air conditioning, general industrial, electronics, oil refining, and mining. The company should benefit from factors such as a rebound in the automotive manufacturing industry, increasing demand for low Global Warming Potential refrigerants, and the need for chemicals used in architectural coatings.
Chemours was spun-off from Dupont back in 2015, and although it has a large amount of debt, its solid liquidity position of $1.7 billion as of Q3 2020 should help to reassure long-term investors. The stock is up 14% year-to-date in 2021 and currently offers a 3.48% dividend yield. Investors should keep in mind that this stock was trading at over $50 a share back in 2019, which means that it offers plenty of long-term upside at this time.
Freeport-McMoRan
Next on our list of materials stocks is a major natural resource company that should benefit from a weak US dollar in 2021. Freeport-McMoran (NYSE:FCX) is one of the world’s largest publicly traded copper producers and also is a major producer of gold and molybdenum. The company operates copper mines in North America, South America, and in the Grasberg minerals district in Indonesia, which happens to be one of the world’s largest copper and gold deposits. Since the majority of commodities are priced in US dollars, a weak dollar means higher prices for copper which benefits a company like Freeport-McMoRan in a big way.
The demand for copper is often viewed as a way to judge economic how the world’s economy is growing, as it is very important for industrial production and construction. It’s used in markets like construction, electrical applications, consumer products, and industrial machinery and is a material that should see steady demand in 2021 and beyond. Freeport-McMoRan is also a great buy thanks to its strong balance sheet position and the fact that every $0.10 per pound increase in copper prices adds an additional $300-$400 million to its cash flows.
Sonoco
This midcap company is a leading manufacturer of consumer and industrial packaging products like paperboard tubes and cores, liner board, rigid plastic bottles, jars, point-of-purchase displays, and protective packaging. It’s also the world’s largest producer of composite cans, tubes, and cores. Sonoco (NYSE:SON) provides its packaging products and services in 36 different countries to both the consumer and industrial sectors and has products that are important in a variety of industries. It’s a strong option in 2021 because it offers some defensive properties that should offer stability during economic downturns.
Sonoco stock is up a 5.5% year-to-date and offers investors a 2.86% dividend yield. With the current strong demand for consumer packaging products and a proven track record of creating unique products such as the Pringles can, this is a materials company worth adding for the long-term. It’s also a plus that most of the company’s sales are under long-term contracts, and if the economy rebounds sharply this year there should be a nice uptick in Sonoco’s industrial packaging sales.