By Fred Fuld III
The worst performing sector in 2024 was Basic Materials, which although was ahead last year, it closed the year up less than a quarter of a percent, grossly underperforming the S&P 500, which was up about 25%.
Of course the winning sectors were the Communications, Financial, and Consumer Discretionary, all of which outperformed the S&P and even the Technology sector.
The Basic Materials sector of the stock market encompasses companies involved in producing, processing, or supplying raw materials essential for manufacturing and construction. This includes businesses that extract natural resources, refine raw materials, or manufacture intermediate goods.
Mining companies are a significant part of this sector, focusing on metals and minerals such as gold, silver, copper, and aluminum. Some also specialize in coal mining, extracting and processing coal for energy or industrial use. The chemical industry is another major component, producing both commodity chemicals like ammonia and chlorine, as well as specialty chemicals tailored for specific applications such as adhesives, coatings, and agricultural products. Fertilizer and agricultural chemical manufacturers, supplying key inputs like nitrogen, phosphate, and potash, also fall within this category.
Forestry and paper companies are essential players, with businesses harvesting wood and manufacturing timber, paper, and packaging materials. Similarly, producers of construction materials, such as cement, sand, gravel, and crushed stone, play a critical role in infrastructure and building projects. The sector also includes manufacturers of plastics and polymers, which supply raw or semi-finished plastics used in various industries, from packaging to manufacturing.
Steel and aluminum producers are another key component, providing essential materials for construction, automotive, aerospace, and industrial equipment. Precious metals and gemstones companies also belong to this sector, focusing on the extraction and refining of gold, silver, diamonds, and other gemstones for use in jewelry and as investment assets. Additionally, some companies produce materials specifically for energy production, such as oilfield chemicals or components for renewable energy infrastructure.
Overall, businesses in the Basic Materials sector are deeply influenced by commodity prices, global economic trends, and the supply-demand dynamics of various industries.
So what are the top stocks in this sector, and will they outperform this year? All of the following companies have a trailing price to earnings ratio under 30, a forward P/E of less than 20, and a relatively low amount of debt.
Idaho Strategic Resources Inc. (IDR)
Idaho Strategic Resources Inc., headquartered in Coeur d’Alene, Idaho, is a vertically integrated junior mining company primarily engaged in the exploration, development, and extraction of gold. The company operates the Golden Chest Mine, located in the Murray Gold Belt of North Idaho, which includes both underground and open-pit mining operations. In addition to gold production, Idaho Strategic Resources is involved in the exploration of rare earth element projects situated in the Idaho REE-Th Belt near Salmon, Idaho. The company emphasizes sustainable mining and milling practices and has a strategic focus on expanding its asset base while investing in future operations.
The stock trades at 24 times trailing earnings and 16 times forward earnings. Earnings per share growth this year were 622% with earnings expected to grow another 18.5% next year. Earnings per share over the trailing 12 months were up 341% on sales growth of 65%. The company has an extremely low market capitalization of $168 million, and should therefore be considered very speculative.
Innospec Inc. (IOSP)
Innospec Inc. is a global specialty chemical company headquartered in Englewood, Colorado. The company operates through three main business segments:
- Fuel Specialties: This segment focuses on products that enhance fuel efficiency, boost engine performance, and reduce emissions for various modes of transportation, including automobiles, boats, and airplanes. It also provides products used by oilfield services providers in the extraction of oil and gas.
- Performance Chemicals: Catering to the personal care industry, this segment offers a range of products designed for personal care applications.
- Oilfield Services: This segment develops and markets products aimed at preventing mud loss during drilling operations.
Innospec places a strong emphasis on research and development, striving to introduce innovative products that meet evolving market needs. The company operates manufacturing, research centers, and facilities across 24 countries, underscoring its global reach.
The stock has a trailing P/E of 20 and a forward P/E of 18. Earnings per share next year are expected to grow by 5.96%. The company, which has a market cap of $2.85 billion, even pays a dividend of 1.35%.
Metallus Inc. (MTUS)
The company makes alloy, carbon and micro-alloy steel products from recycled scrap metal in Canton, OH. Its products are used in industrial, automotive, aerospace & defense and energy end-markets.
This $650 million market cap stock trades at 30 times trailing earnings and 14 times forward earnings. Although earnings per share growth was down for this year, next year earnings are expected to grow by 71.8%
The stock has an extremely favorable price-to-sales ratio of 0.55, and is selling at 91% of book value.
Disclosure: Author didn’t own any of the above at the time the article was written. This article includes stocks with low market caps that should be considered very speculative.