Get All Access for $5/mo

Materials Sector Stock Winners: Consider These 3 in 2022 Why not pick up a few materials stocks in 2022? Let's find out why you might want to bump up your portfolio with this sector.

By Melissa Brock

This story originally appeared on MarketBeat

Depositphotos.com contributor/Depositphotos.com - MarketBeat

Well, it's certainly true that the materials sector is one of the most ho-hum sectors on Wall Street. However, there's no denying that stock mavens perked up at certain points during 2021 when certain materials stocks began to glisten in the limelight.

Economic recovery from the lingering effects of the pandemic as well as infrastructure changes will ramp up due to Congress' infrastructure bill, which will add $550 billion of federal investments in America's bridges and roads, broadband, water, and energy systems. What will benefit? Exactly — materials stocks.

What is the Materials Sector?

The materials sector seems a bit more nebulous, doesn't it, than, say, the real estate sector?

Let's walk through a basic overview of materials stocks and a few sub-sectors within the sector. Materials, often entrenched in commodities, deal in the discovery, extraction, and processing of raw materials. So, what do raw materials actually mean? Here's an example of a few sub-sectors within the materials sector: chemicals, metals and mining, forestry (including paper and construction materials), and containers and packaging.

As we saw during the height of the pandemic, the materials sector displays unique sensitivity to fluctuations in the global economy, the U.S. dollar, and, unfortunately, the effects of inflation.

  • Chemicals: The chemicals sub-sector transforms raw materials into more than 70,000 diverse products. Several hundred thousand U.S. chemical facilities, from petrochemical manufacturers to chemical distributors, create, manufacture, store, transport, and deliver chemicals along the supply chain, according to the Cybersecurity and Infrastructure Security Agency.
  • Construction materials: Companies involved in construction materials mine, quarry, and process raw materials used for both heavy and building construction. They may use cement, sand and gravel, clay, concrete, and marble.
  • Glass: The glass industry produces sheet glass, optical glass, glass fiber, household glassware, glass containers as well as the glass used in construction, illuminating engineering, and electrical engineering.
  • Paper: Companies that use wood as raw material produce wood pulp, paper, paperboard, and other cellulose-based products.
  • Forest products and related packaging products: Packaging, tissue papers, and pulp for hygiene products and textile applications corner this market. The packaging industry is always looking for new uses for wood and its components. The industry may continuously undergo transformative, never-before-seen changes.
  • Metals, minerals, and mining companies: Metals, minerals, and mining apply to excavating and processing metals, minerals, and other geological resources, including producers of steel.

Materials Stocks to Add to Your List in 2022

What might you consider from this sector this year? Let's take a look at some materials stocks headliners for 2022.

United States Steel Corporation (NYSE: X)

Even though steel input costs spiked and supply-chain and logistics suffered bumps, the steel industry zipped to all-time highs and experienced strong headwinds in the first three quarters of 2021. As soon as supply improved, steel did hit a bit of a wall.

Even so, we're eyeballing the United States Steel Corporation (NYSE: X), the storied behemoth headquartered in Pittsburgh, Pennsylvania. United States Steel Corp. manufactures and sells steel products through its flat-rolled products (steel slabs, strip mill plates, sheets, iron ore, and more), U.S. Steel Europe (marketing strip mill plates, spiral welded pipe, and heating radiators), and tubular products segments (welded steel casing and tubing, line pipe and mechanical tubing).

In Q3 2021, U.S. Steel had net earnings of over $2 billion, or $6.97 per diluted share, adjusted net earnings of $1.543 billion, or $5.36 per diluted share, and adjusted EBITDA of $2.027 billion. It has the liquidity to the tune of $4.503 billion, including cash of $2.044 billion.

It could be a great pick for value investors in 2022.

Cleveland-Cliffs (NYSE: CLF)

Cleveland-Cliffs, formerly known as Cliffs Natural Resources Inc. somewhat of a direct competitor of U.S. Steel, forms the largest flat-rolled steel company and the largest iron ore pellet producer in North America. The vertically integrated company specializes in iron making, steelmaking, rolling, hot and cold stamping of steel parts and components, and more.

The financial health and growth prospects of Cleveland-Cliffs (revenue growth, lower debt position, and vertically integrated business) show potential for outperformance. Earnings have grown at an incredibly fast pace thanks to a recent acquisition.

Cleveland-Cliffs had record quarterly revenue of $6 billion (compared to prior-year Q3 results of $1.6 billion), net income of $1.3 billion, or $2.33 per diluted share, and record quarterly adjusted EBITDA of $1.9 billion. For the first nine months of 2021, Cleveland-Cliffs recorded revenues of $15.1 billion and net income of $2.1 billion, or $3.69 per diluted share, compared to $3.1 billion in the first nine months of 2021 and a net loss of $155 million or a loss of $0.51 per diluted share.

Materials Select Sector SPDR ETF (NYSE ARCA: XLB)

If you want exposure to materials stocks through a broader slice of the materials market, consider the diversified exchange-traded fund (ETF) Materials Select Sector SPDR ETF (XLB).

Its top holdings include the following companies (which might also give you some ideas on stocks to add to your portfolio):

Managed by State Street Global Advisors, the Materials Select Sector SPDR ETF manages assets over $8 billion and low costs, transparency, flexibility, and tax efficiency. Annual operating expenses for this ETF are 0.12%, one of the least expensive products in the sector. If you're in it for the long haul and prefer a diversified approach, this ETF may be your ticket.

Select the Right Materials Stocks for Your Portfolio

Convinced materials stocks are the way to go? Consider all the implications and pick up a few of these solid options through your brokerage. Materials stocks can also help you pick your way through inflation — excellent news when the inflation reports are so dour.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

The Side Hustle He Started in His College Apartment Turned Into a $70,000-a-Month Income Stream — Then Earned Nearly $2 Million Last Year

Kyle Morrand and his college roommates loved playing retro video games — and the pastime would help launch his career.

Leadership

Overnight Success as a Startup Is Unrealistic — Embrace the Uncertainty and Try This Instead.

The startup norm of "move fast and break things" is short-sighted. Here is why being patient will serve your business in the long run.

Travel

Reduce Business and Personal Airfare Costs by Saving Big with Matt's Flights

This week only, you can get a lifetime subscription for just $80.

Health & Wellness

90% of Execs Say Providing Employee Health Benefits Will Be Unsustainable By 2030 — Here's One Solution Businesses Need to Consider

Healthcare navigation is something that employers and employees can't afford to go without. Here's why.

Money & Finance

How Top Financial Leaders Excel with Increasing Responsibilities

Hear from CFO Leadership Council founder and president Jack McCullough for tactical lessons from some of the world's best CFOs.

Fundraising

Getting Funding as a Minority-Owned Business Shouldn't Be a Far-Fetched Dream. Here's How This CEO is Making Public Capital More Available to All.

Historically, minority-owned businesses have faced barriers that limit their access to public capital and other necessary financial resources essential for scaling operations, innovating products, and expanding into new markets. It shouldn't be this way — raising public capital should be accessible for all, not just a privileged few.