Materials stocks were mostly ignored by investors last year as the industry was brought low by near-halt in economic activities. But the demand for materials has been climbing rapidly this year with the reopening of industrial and construction activities. So, it could be wise to bet now on Alcoa (NYSE:AA), Quanex (NYSE:NX), and Olympic (ZEUS). We think these names are well positioned to capitalize on the industry’s recovery. Read on.The materials industry was mostly ignored by investors last year as companies in this space were severely affected by a drastic decline in economic activities due to COVID-19 related restrictions. However, with the economy’s recovery so far this year, the demand for materials such as iron and steel is rising with the reopening of the industrial and construction sectors. An expected inflationary environment in the near term is also playing a role in boosting demand for materials.
Investors’ interest in the materials sectors is evident in the Materials Select Sector SPDR Fund’s (XLB) 19.2% year-to-date returns compared to the SPDR S&P 500 Trust ETF’s (SPY) 12.8% gains. And continued progress on the vaccination front should drive the demand for materials further with industries returning to full-capacity production. According to the data published by the CDC, 51.8% of the total United States’ population had received at least one dose of COVID-19 vaccine as of June 9.
Given this backdrop, we think it could be wise to bet on shares of fundamentally sound material companies Alcoa Corporation (AA), Quanex Building Products Corporation (NX), and Olympic Steel, Inc. (ZEUS).