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5 Basic Materials Stocks to Buy on Strong Momentum
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After a nightmarish 2015, this year brought a ray of hope for the basic materials sector, which encompasses a broad range of industries ranging from mining and metals to chemical products. Last year, prices hit multi-year lows due to the economic weakness in China and the first hike in interest rates in almost a decade. Even though concerns over China’s future growth continue to cloud the sector’s outlook, there are plenty of reasons to be optimistic about the sector over the long term.
What Has Turned the Tables This Year?
Let’s have a look, industry by industry, at what has changed for the sector.
Metals - Gold has been the best performing asset this year, trumping major equity indices, investment grade and high yield bonds and commodity indices. A weakening greenback, slowdown in China, volatile equity markets and introduction of negative interest rates by several of the world’s central banks (including Japan) have spurred safe-haven demand for gold leading to an 18% gain so far. Silver, in tandem, has clocked a 25% gain so far. A delay in raising interest rates elevates demand for gold and silver.
Gold prices are generally supported by retail demand for the metal in the latter part of the year, as it is a seasonally strong period in countries like India and China. Moreover, pent-up demand due to the shutdown of jewelry stores in India in the first quarter will likely be a catalyst this year. With rising safe-haven demand and dwindling supplies, gold and silver prices are set to gain.
Copper prices have also gained on the back of a weaker U.S. dollar on Brexit fears. Demand for copper will remain strong, supported by its widespread use in transportation, manufacturing and construction, limited supplies from existing mines, and the absence of new significant development projects.
For aluminum, automotive, packaging and airline industries are expected to support demand. India appears promising given its currently low levels of aluminum consumption and high urban population growth. With demand being strong, the industry needs to pull the reins on supply, which will lead to deficits for a prolonged period and create the ground for higher aluminum prices, going forward.
Iron & Steel - The housing and construction sector is the largest consumer of steel today and, consequently, of iron ore. In the U.S., an improving job market and a strong housing sector will lead to 3.2% growth in steel demand this year. Even though the U.S. steel industry continues to be under the threat of cheaper imports, imposition of anti-dumping duties are expected to help American steel makers defend their turf against illegally dumped steel products. Much hope is also pinned on India, which is touted to be the next growth engine, given its progressive construction and manufacturing sectors, rapid urbanization and structural reforms.
Chemicals - Despite a spate of headwinds including concerns over China’s economy, weakness in Europe, soft agriculture market fundamentals and weak demand in the energy space, the recovery in the chemical industry is expected to continue through 2016, aided by strength in the light vehicles market, an upswing in the housing sector and significant shale-linked capital investment.
Growing Prospects This Year
New York-based aluminum giant, Alcoa Inc. (AA - Free Report) will once again kick start the second-quarter earnings season with results scheduled for Jul 11 after the market closes. For the basic material sector, even though earnings are expected to decline 15.1% in the second quarter, a dramatic recovery is projected for the latter half of the year with 5% growth in the third and 17.3% in the fourth. (For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report.)
Thus, a collusion of factors has prepared the ground for basic materials to win back the favor of investors after disappointing last year. It would be a prudent move to zero in on some momentum stocks in the materials space right now. All these stocks exhibit all signs of healthy prospects.
How to Pick the Right Stocks?
Picking momentum stocks has now become a fairly simple task thanks to the Zacks Momentum Style Score which indicates the most favorable time to enter a stock to take advantage of the momentum with the highest probability of success. Our research shows that stocks with a Momentum Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential. These stocks have rallied considerably in the last four weeks and have also undergone positive estimate revisions.
Axiall Corporation
Headquartered in Atlanta, GA, Axiall Corporation manufactures and markets chemicals and building products in the United States as well as globally.
This Zacks Rank #1 stock with a Momentum score of A has gained 111.75% year to date. Moreover, over the past 30 days, its estimates have moved north an impressive 300% for the current fiscal and 13% for the next.
Vancouver, Canada based B2Gold engages in the acquisition, exploration, and development of mineral properties in Nicaragua, the Philippines, Namibia, Mali, Colombia, Burkina Faso, Finland and Chile.
B2Gold sports a Zacks Rank #1 and a Momentum score of A. The stock has surged 111.73% year to date. The company has been witnessing positive estimate revisions over the last 60 days, as the Zacks Consensus Estimate for 2016 and 2017 has climbed around 167% and 100%, respectively, over the same time frame.
Compania de Minas Buenaventura S.A.A. (BVN - Free Report)
Headquartered in Lima, Peru, Compañía de Minas Buenaventura engages in the exploration, mining, and processing of gold, silver, lead, zinc, and copper metals in Peru.
This Zacks Rank #2 stock with a Momentum score of A has surged 147.2% year to date. Its earnings estimate for the current year has catapulted 225% over the last 60 days. For the next year, estimates have moved up 38%.
Headquartered in Toronto, Canada, McEwen Mining Inc. explores for, develops, produces, and sells precious and base metals in Argentina, Mexico, and the United States. It primarily explores gold, silver and copper.
This Zacks Rank #2 stock with a Momentum score of A has gained 216.04% year to date. Its earnings estimate for the current year has shot up 100% over the last 60 days and 33% for the next fiscal.
Headquartered in Bedford Heights, OH, Olympic Steel, Inc. processes and distributes metal products in the United States, Canada, Puerto Rico, Mexico, and internationally.
This Zacks Rank #2 stock with a momentum score of A has surged 350.25% year to date. Its estimates have moved north 40% for 2016 and 25% for 2017 over the past 30 days.
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5 Basic Materials Stocks to Buy on Strong Momentum
After a nightmarish 2015, this year brought a ray of hope for the basic materials sector, which encompasses a broad range of industries ranging from mining and metals to chemical products. Last year, prices hit multi-year lows due to the economic weakness in China and the first hike in interest rates in almost a decade. Even though concerns over China’s future growth continue to cloud the sector’s outlook, there are plenty of reasons to be optimistic about the sector over the long term.
What Has Turned the Tables This Year?
Let’s have a look, industry by industry, at what has changed for the sector.
Metals - Gold has been the best performing asset this year, trumping major equity indices, investment grade and high yield bonds and commodity indices. A weakening greenback, slowdown in China, volatile equity markets and introduction of negative interest rates by several of the world’s central banks (including Japan) have spurred safe-haven demand for gold leading to an 18% gain so far. Silver, in tandem, has clocked a 25% gain so far. A delay in raising interest rates elevates demand for gold and silver.
Gold prices are generally supported by retail demand for the metal in the latter part of the year, as it is a seasonally strong period in countries like India and China. Moreover, pent-up demand due to the shutdown of jewelry stores in India in the first quarter will likely be a catalyst this year. With rising safe-haven demand and dwindling supplies, gold and silver prices are set to gain.
Copper prices have also gained on the back of a weaker U.S. dollar on Brexit fears. Demand for copper will remain strong, supported by its widespread use in transportation, manufacturing and construction, limited supplies from existing mines, and the absence of new significant development projects.
For aluminum, automotive, packaging and airline industries are expected to support demand. India appears promising given its currently low levels of aluminum consumption and high urban population growth. With demand being strong, the industry needs to pull the reins on supply, which will lead to deficits for a prolonged period and create the ground for higher aluminum prices, going forward.
Iron & Steel - The housing and construction sector is the largest consumer of steel today and, consequently, of iron ore. In the U.S., an improving job market and a strong housing sector will lead to 3.2% growth in steel demand this year. Even though the U.S. steel industry continues to be under the threat of cheaper imports, imposition of anti-dumping duties are expected to help American steel makers defend their turf against illegally dumped steel products. Much hope is also pinned on India, which is touted to be the next growth engine, given its progressive construction and manufacturing sectors, rapid urbanization and structural reforms.
Chemicals - Despite a spate of headwinds including concerns over China’s economy, weakness in Europe, soft agriculture market fundamentals and weak demand in the energy space, the recovery in the chemical industry is expected to continue through 2016, aided by strength in the light vehicles market, an upswing in the housing sector and significant shale-linked capital investment.
Growing Prospects This Year
New York-based aluminum giant, Alcoa Inc. (AA - Free Report) will once again kick start the second-quarter earnings season with results scheduled for Jul 11 after the market closes. For the basic material sector, even though earnings are expected to decline 15.1% in the second quarter, a dramatic recovery is projected for the latter half of the year with 5% growth in the third and 17.3% in the fourth. (For a detailed look at the earnings outlook for this sector and others, please read our Earnings Trends report.)
Thus, a collusion of factors has prepared the ground for basic materials to win back the favor of investors after disappointing last year. It would be a prudent move to zero in on some momentum stocks in the materials space right now. All these stocks exhibit all signs of healthy prospects.
How to Pick the Right Stocks?
Picking momentum stocks has now become a fairly simple task thanks to the Zacks Momentum Style Score which indicates the most favorable time to enter a stock to take advantage of the momentum with the highest probability of success. Our research shows that stocks with a Momentum Style Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential. These stocks have rallied considerably in the last four weeks and have also undergone positive estimate revisions.
Axiall Corporation
Headquartered in Atlanta, GA, Axiall Corporation manufactures and markets chemicals and building products in the United States as well as globally.
This Zacks Rank #1 stock with a Momentum score of A has gained 111.75% year to date. Moreover, over the past 30 days, its estimates have moved north an impressive 300% for the current fiscal and 13% for the next.
B2Gold Corp. (BTG - Free Report)
Vancouver, Canada based B2Gold engages in the acquisition, exploration, and development of mineral properties in Nicaragua, the Philippines, Namibia, Mali, Colombia, Burkina Faso, Finland and Chile.
B2Gold sports a Zacks Rank #1 and a Momentum score of A. The stock has surged 111.73% year to date. The company has been witnessing positive estimate revisions over the last 60 days, as the Zacks Consensus Estimate for 2016 and 2017 has climbed around 167% and 100%, respectively, over the same time frame.
Compania de Minas Buenaventura S.A.A. (BVN - Free Report)
Headquartered in Lima, Peru, Compañía de Minas Buenaventura engages in the exploration, mining, and processing of gold, silver, lead, zinc, and copper metals in Peru.
This Zacks Rank #2 stock with a Momentum score of A has surged 147.2% year to date. Its earnings estimate for the current year has catapulted 225% over the last 60 days. For the next year, estimates have moved up 38%.
McEwen Mining Inc. (MUX - Free Report)
Headquartered in Toronto, Canada, McEwen Mining Inc. explores for, develops, produces, and sells precious and base metals in Argentina, Mexico, and the United States. It primarily explores gold, silver and copper.
This Zacks Rank #2 stock with a Momentum score of A has gained 216.04% year to date. Its earnings estimate for the current year has shot up 100% over the last 60 days and 33% for the next fiscal.
Olympic Steel Inc. (ZEUS - Free Report)
Headquartered in Bedford Heights, OH, Olympic Steel, Inc. processes and distributes metal products in the United States, Canada, Puerto Rico, Mexico, and internationally.
This Zacks Rank #2 stock with a momentum score of A has surged 350.25% year to date. Its estimates have moved north 40% for 2016 and 25% for 2017 over the past 30 days.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>