If you invest in the materials sector, it’s not a stretch to say that you’re investing in the very building blocks of … well, just about everything.
Wherever you are right now, take a look around. Walls, ceiling, lights, table, chairs, TV, computer, phone. Depending on the item, it might have been made by companies across several sectors – but the wood, plastic, metals, resins, paints or chemicals needed to make that item came from the materials sector.
And yet, despite materials’ presence in everything, the sector is anything but defensive. On the contrary – it’s often as cyclical as it gets, making it vital to understand the various dynamics that pull and push material stocks around.
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Today, we’ll examine the materials sector. We’ll start by slapping a definition on it, then explain why investors might want to have exposure to these companies and finish up by showing you how to find the best materials stocks to buy.
| Company (ticker) | Long-term EPS growth rate | Forward P/E ratio | Number of covering analysts | Analysts’ consensus recommendation | Dividend yield |
| Ashland (ASH) | 14.0% | 16.3 | 13 | 1.55 | 2.3% |
| Silgan Holdings (SLGN) | 9.4 | 13.1 | 15 | 1.64 | 1.5 |
| Smurfit Westrock (SW) | 10.2 | 17.4 | 15 | 1.81 | 2.2 |
| DuPont (DD) | 11.5 | 18.3 | 24 | 1.84 | 1.9 |
| Graphic Packaging Holding (GPK) | 15.5 | 10.5 | 15 | 2.00 | 1.5 |
| Avery Dennison (AVY) | 13.5 | 18.6 | 19 | 2.14 | 1.8 |
| FMC Corp. (FMC) | 14.0 | 13.0 | 23 | 2.16 | 4.2 |
| Ball Corp. (BALL) | 9.7 | 16.2 | 19 | 2.19 | 1.5 |
| RPM International (RPM) | 10.9 | 21.9 | 19 | 2.20 | 1.6 |
| Packaging Corporation of America (PKG) | 13.5 | 21.9 | 14 | 2.20 | 2.1 |
What are materials stocks?
The Global Industry Classification Standard (GICS) – a framework used by major index providers to help classify public companies – gives us a pretty helpful, straightforward answer:
“The Materials Sector includes companies that manufacture chemicals, construction materials, forest products, glass, paper and related packaging products, and metals, minerals and mining companies, including producers of steel.”
Or more broadly put, materials companies produce raw and/or refined materials, which are then used in the production of other things. It could be steel that’s used in the making of a bridge, paint that’s used to finish an automobile, or even a cardboard box – itself technically a finished product, but a product that’s not actually “used” until goods are packed and shipped in it.
Why do investors buy materials stocks?
Materials companies are one of the ultimate cyclical bets.
In theory, it’s pretty straightforward: If a product is in high demand, that will flow through to higher demand in the materials required to make said product – and that high…
Read More: The Best Materials Stocks to Buy
