Best Materials Stocks for 2024: Investing in Materials

Review and Analysis

Overview

The basic-materials sector does not attract as much attention as other more visually prominent sectors, though its significance is equal if not greater. Basic materials, after all, are vital components only in the production of other goods being sold, such as microchips in technological products, but also essential for the provision of services as well. Just think that even call centre services could not be offered if basic materials companies did not produce the plastic and metal needed for their telephone devices and computers.

Many companies in the basic materials sector enjoy huge profitability since basic materials are essential to many other industries and sectors, and thus the entire basic materials sector is valuable, holding much potential and promise for interested stock investors.

Read on to learn what this sector is all about and what are the pros and cons of an investment in basic materials stocks, to help you discern if this is the right investment for you.

What Are Basic-Materials Stocks?

The companies in the basic materials sector are the companies that produce and deal with the basic materials used to make just about every other product, and basic materials stocks are the stocks of the companies in this sector. The main categories of basic materials are as follows:

• Precious Metals, such as gold, silver and platinum. These are natural metals that are expensive to mine and thus carry a high value. They are often used in the making of jewellery.
• Oil, which is the most essential basic material for the energy sector. Many other fuels and products, such as gasoline, jet fuel and diesel, are produced through the refinement of oil.
• Wood, is another prime example of basic material as it is used in the construction of homes, furniture, decorative items and many more.
• Iron Ore, which is another important raw material as it is essential for the production of steel, a material used in the construction and manufacturing industries, as well as for the making of many components, such as those used in car engines.
• Raw Chemicals, which are essential for many necessary products in the lives of modern people, such as medicines and cleaning materials.

As revealed by the list above, the great majority of basic materials are natural, while some, such as chemicals, are man-made. Synthetic or natural, however, all basic materials are defined as such due to their role as the most basic and most raw ingredients, found in most day to day products.

There are different ways to produce basic materials. Some of them are even reusable or even renewable, wood being a primary example of such a basic material that is renewable. On the other hand, most basic materials, such as oil and precious metals, as well as materials used in the construction of buildings are finite and need many years to be developed, thus rendering them expensive and precious.

By the end of the guide, you should know the following:

• If Materials stocks is a good or a bad investment.
• How to buy Materials stocks.
• Where to buy Materials stocks.
• Which Materials share is best to buy now?.
• Materials stock price prediction: Where Will Materials stock Be in the next few Years?

Pros and Cons of Buying Materials stock investment

The Benefits of Materials stocks investment

Any type of investment comes with different associated benefits will also carrying an inherent risk. Prior to committing your money into an investment in basic materials stocks therefore, it is important to be aware of the advantages and disadvantages of investing in this type of stock, which are:

As basic materials are used in the production of every product we purchase, investing in this sector naturally has many benefits, the chief amongst which are as follows:

• The guaranteed Demand for Basic Materials

  Life, as we know it in modern societies, would not exist if basic materials were not present, as such materials as wood, iron ore and oil, are used in all aspects of human life and activity. What this means is that basic materials are vital for everyday life and thus the demand for such materials is ever-present and ever-growing. In turn, this makes the stocks of basic materials companies attractive for investors. The fact that basic materials will never become obsolete, makes investing in them a secure choice.

• The cyclical nature of many Basic-Materials Stocks

  Cyclical stocks are those whose prices move in the same direction as the overall economy. When the economic conditions are positive their prices go up, and when the economic conditions are negative their prices fall. As such, this correlation makes most basic materials stocks, which are cyclical in nature, very easy to read and facilitates investors in being able to follow trends and correctly anticipate price moves. Consequently, the cyclical nature of the stocks of the basic materials equips investors with a tool they can use to make the right investment decisions and thus maximises their chances for profit and success.

  To illustrate this further, it is worth point out three examples of basic materials stocks of a cyclical nature, which pose important investment opportunities. The first example is wood companies, whose stocks tend to always make gains under positive economic conditions, as consumers are most likely to increase their demand for wood for construction and other purposes under conditions of overall growth. Wood companies’ stocks experience a fall when the overall economic conditions turn negative. Another similar example is oil companies, since under positive economic conditions there is more travelling and more consumption of energy, while when the overall economic conditions are negative consumers tend to cut down on travelling and become more careful with energy consumption, thus driving both demand and stock prices down. A third example is other basic building materials, such as iron ore, steel and glass, whose prices also go up during times of economic growth and increased demand for building and land development, while they fall during an economic recession.

• Basic-Materials Stocks Acting As Safe Havens

  Contrary to some basic materials being cyclical in nature, others act as safe-havens. What this means is that the prices of these types of basic materials go up during recession times and decline under high growth conditions, when their haven characteristics are not valued as much. The best example to cite here is gold and silver mining since these precious metals are in high demand during times of economic hardship because investors ditch other types of investment and rush to pile their money in such precious, finite metals. Moreover, during the economic recession, the price of oil goes down and this also has a positive effect on activities such as precious metal mining, because the associated costs and expenses are also reduced. Consequently, an investment in the stock of this type of basic materials company is a great haven to resort to during times of economic unrest and recession.

Things we didn't like in Materials stocks investment

Despite their numerous advantages, investments in basic materials stocks also have their own downsides, the most important of which, pertain to the following:

• 1. Their predominantly cyclical nature is not always positive The vast majority of stocks in the basic-materials sector are cyclical stocks, but this is not necessarily a good thing for all investors and at all times. Stocks that are cyclical in nature do not usually yield impressive returns and are thus not suitable for investors looking for high returns. On the contrary, such cyclical basic materials stocks, usually display a growth that is steady and consistent, yet slow, while income generation for investors comes mostly through dividends.

  This cyclical nature also has the downside that it renders the entrance and exit timing of an investor very crucial, as at times of sudden economic deterioration an investment that is not properly timed may cause great losses.

• Many investors find the sector boring

  As basic materials are what their name reveals, i.e. basic, many investors don’t find them as exciting and thrilling as other sectors and companies. When investing in a company or brand or product that you enjoy and find appealing, Facebook and Apple come to mind as such examples, and then investors enjoy researching these companies and are more willing to invest. In the case of basic material stocks, fewer investors find pleasure in performing the necessary due diligence in such “boring” basic material companies.

• Profit generation is not certain even for big companies

  Some big names in the basic materials sectors might have very large market capitalization, but still, make very minor profits if any at all. The reason for this is the massive costs they are faced with, especially for those basic materials companies that rely on mining. As a result, such big players in the sector cannot generate profits and must rely on investors or lenders to keep funding their costly operations.

Where Can You Buy Materials stocks

There are several online sites and platforms where people from across the globe can buy Materials at good exchange rates and with low or no transaction fees. To aid your quest we have comprised a list of some of the most popular Stock Trading platforms to buy Materials sector's shares from and your strongly advised to consult this list before making your first purchase of or investment in Materials industry.

Features to Look in Materials stocks

Due to their many merits, basic materials stocks may indeed be a great investment option for certain investors, however, like with all investment types, they are not suitable for all investors. If you are considering investing in the basic materials sector, only proceed if you can meet the following two key requirements:

Invest in basic materials stocks only if you have a genuine interest in the sector and the willingness to learn about this industry and the companies that comprise it. If you find this field boring and less exciting than others and cannot spend time and effort to conduct the necessary due diligence, then it is best if you choose to invest your money elsewhere.

Due to the highly cyclical nature of most basic materials stocks, only invest in such companies if you can keep a close eye and be up-to-date with the overall economic conditions constantly, as this is the best method to be able to know when to enter or exit investment positions in this particular sector. If you cannot keep up with this type of data, then your chances for a successful investment in basic materials stocks are greatly hindered.

Future Outlook for Materials stocks

Is now the right time to invest in Materials stocks?

The answer is definitely not no, but a little short than a resounding yes. The industry’s outlook is promising and its future appears bright, however, investors should not be expecting a linear growth pattern, nor anticipate that all Materials stocks will fare equally well. To maximize the chances for success of your Materials sector stocks investment make sure you make smart and wise decisions on which energy companies you will choose to invest in.

Risks of Investing in Materials stocks

Tips on How to Invest in Materials stocks and Make a Profit

There is no guarantee that you will make a profit when you invest in Materials. However, to give yourself the best chance possible we have hand-picked the three most valuable such strategies, which you can find below:

• Tip 1: Set your own specific Financial Goals
• Tip 2: Dollar-Cost Average Your Materials Investments
• Tip 3: Diversify Your Materials Investment

Overall Conclusion – Final Thoughts

Basic-materials stocks are associated with some great benefits as investments, not least because basic materials may be basic, but they are essential for the everyday lives of modern humans and thus demand them is always present. If you don’t mind their cyclical nature and rather slow growth, then basic materials stocks can provide you with great investing opportunities. However, as with all investments, you are strongly advised to engage in serious research and due diligence before committing your funds to basic materials stocks, so that all your decisions are educated and stand better chances for success and profit. Finally, it is also advisable to diversify your investment portfolio and not tie all your funds with the fate of one particular sector alone.

In this guide, the aim wasn’t only to answer simple questions like “how to buy stocks of the Materials sector?” or “where to buy Materials stocks?”. Instead, the goal was to equip you with the relevant knowledge and insight to be able to see and understand the bigger picture as well as make your Materials stocks investment journey as successful and as profitable as possible!