The 12 Best Materials Stocks to Buy for 2022
Infrastructure spending and a continued economic recovery could boost materials stocks in the new year. Here are 12 top sector picks for 2022.
Even Wall Street's best materials stocks often go overlooked. But the sometimes boring sector enjoyed renewed interest at different times throughout 2021 – a trend that should carry into 2022 as the global economy continues to recover.
Materials-sector companies are involved in activities such as mining, producing refined metals and manufacturing chemicals. Their products are effectively building blocks used in developing a variety of goods. (Steel is used to create buildings, fertilizers are used to grow food, etc.)
Excitement for materials stocks ebbed and flowed throughout 2021 alongside investors' optimism for the economic recovery. The sector roughly matched the S&P 500's performance for most of the year, though optimism for metals is high going into 2022 thanks in part to the passage of the recent infrastructure bill.
Materials stocks can also help investors navigate inflation; many commodities are priced in dollars, so a cheaper dollar means higher prices for commodities in dollar terms.
Just one bit of caution about enthusiasm over materials or any other recovery-related plays: COVID variants, such as the recently dubbed "omicron" strain, could be a source of volatility going forward.
With that said, here are 12 of the best materials stocks to buy in 2022. We looked at stocks tracked by the Stock News POWR Ratings System and focused only on those that received a Buy or Strong Buy rating from the pros based on the company's current fundamentals and longer-term outlook. We then explored what made each pick stand out to Wall Street's analysts.
Data is as of Nov. 29. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.
Celanese
- Market value: $17.4 billion
- Dividend yield: 1.7%
- POWR Ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 1.69
Celanese (CE, $159.79), like many of the market's best materials stocks, isn't necessarily a household name. But it likely impacts more facets of your life than you realize.
Celanese is one of the world's largest producers of acetic acid and its downstream derivative chemicals, which are used in various end markets, including coatings and adhesives. The company also produces specialty polymers used in the automotive, electronics, medical and consumer end markets and cellulose derivatives found in cigarette filters.
The firm has grown through acquisitions. For instance, its 2016 purchase of thermoplastic compounder SO.F.TER. Group strengthened its solutions capability and project pipeline. And in 2017, it bought Nilit's nylon compounding unit to help the company become a leading nylon compound supplier.
Celanese, like many other materials stocks, is seeing a lot of growth in emerging markets such as Asia. It has an integrated chemical complex in Nanjing, China, serving as a foundation for expansion and helping to meet the increasing demand in Asia.
The POWR Ratings system pegs CE as a B-rated Buy. That includes a Sentiment Grade of B reflecting a strong analyst consensus. Of the 16 Wall Street pros following the materials-sector pick, 11 currently have a Buy or Strong Buy rating on it.
Celanese's fundamentals also earn it a Quality Grade of B. The company's cash jumped 26.3% sequentially to $1.4 billion in the third quarter. This is much higher than its short-term debt of $110 million. Celanese also has an impressive net profit margin of 35.9%. See the complete POWR Ratings for Celanese (CE) here.
Looking ahead to 2022, Deutsche Bank's David Begleiter, who rates CE stock a Buy, recently hosted meetings with CFO Scott Richardson and investors. "Overall, the meetings reinforced our confidence in Celanese at least meeting, if not beating, our $15-plus EPS forecast for 2022 and deploying cash into value creating acquisitions and or share buybacks," he says.
Commercial Metals
- Market value: $3.9 billion
- Dividend yield: 1.7%
- POWR Ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 3.00
Commercial Metals (CMC, $32.01) operates steel mills, steel fabrication plants and metal recycling facilities in the U.S. and Poland. The company primarily manufactures rebar and structural steel, which are vital product categories for the nonresidential construction sector.
The firm reported record levels of production and shipments at seven of its 10 steel mills during its most recent quarter as demand for its products skyrocketed. In North America, CMC is seeing strong rebar demand due to construction growth. Plus, strong construction activity in Europe, especially in Poland, is driving demand.
CMC also is gaining on historically high steel prices, driven by massive demand and tight supply conditions. The company has implemented price increases across its mill products in response to the rising costs. Management is also gaining from its ongoing network optimization efforts. This is expected to increase its margin and reduce costs.
The stock has an overall grade of B (Buy) in the POWR Ratings system. This includes a Growth Grade of B, which is no surprise as EPS have grown an average of 44.8% per year over the past five years. Earnings are expected to jump 96.6% year-over-year in the current quarter.
The company also has a Momentum Grade of A due to its recent and long-term price strength. Get Commercial Metals (CMC) complete POWR Ratings analysis here.
Conversely, BMO Capital Markets' David Gagliano actually sees business momentum slowing, but still believes shares are "well-positioned on a relative basis."
"After six consecutive quarters of strong EBITDA [earnings before interest, taxes, depreciation and amortization] gains, we estimate some slowing in positive earnings momentum, as plateauing metal margins/volumes and higher conversion costs offset improving downstream products results as FY'22 progresses," he says. "Nevertheless, we estimate resilient overall results and consistent free cash flow to fund the Arizona 2 micro-mill and systematic buybacks."
Dow
- Market value: $42.1 billion
- Dividend yield: 4.9%
- POWR Ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 2.25
Dow (DOW, $56.86) is a diversified chemical manufacturing company. It combines science and technology to develop innovative solutions that are essential to human progress. Its portfolio includes packaging and specialty plastics, industrial intermediates and infrastructure, and performance materials and coatings.
Dow is entering 2022 on an operational high note. In its most recent quarter, the company reported revenue and earnings that topped analyst expectations. Sales were driven higher due to an increase in local pricing and tight supply. The company saw a 50% year-over-year boost in prices in its third quarter, which helped net sales jump 53%. DOW is also expected to gain from cost-cutting and productivity actions. Its restructuring program should provide margin benefits and it is expected to achieve its $300 million run rate by the end of 2021.
The firm is also focused on investing in attractive areas. Dow is currently investing in several high-return projects, such as the expansion of its downstream silicones' capacity. An ethylene cracker expansion in Canada is also planned, and its South China Specialties Hub project should allow the company to capture polyurethane systems and alkoxylates demand in Asia.
Dow is one of several B-rated (Buy) materials stocks in the POWR Ratings system. That's propeled by a Value Grade of A on the back of cheap trailing price-to-earnings (P/E) and forward P/E ratios of 7.5 and 8.7, respectively. Its price-to-sales ratio of 0.8 is also well below the industry average of 1.2.
DOW also has a Quality Grade of B. Its cash balance of $3.0 billion in the most recent quarter is much higher than its short-term debt of $683 million. Management is also quite efficient, with a return on equity of 35.4%. Check out the full POWR Ratings for Dow (DOW) here.
"We are reiterating our Buy rating on Dow with a target price of $78," says Argus Research analyst Bill Selesky. "We expect Dow to benefit from stronger realized prices for commodity chemicals and increased demand in North America and China. We also have a favorable view of Dow’s low-cost structure, solid cash flow, declining capital spending requirements, and sustainable dividend [currently yielding 5.1%]."
Nutrien
- Market value: $39.1 billion
- Dividend yield: 2.7%
- POWR Ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 1.91
Nutrien (NTR, $68.43) is the world's largest fertilizer producer by capacity. The company was created a few years ago as a result of the merger between PotashCorp and Agrium. It produces the three main crop nutrients: nitrogen, potash and phosphate. Its main focus is potash, where it is the global leader in installed capacity with a roughly 20% market share.
The company is also the largest agricultural retailer in the U.S., selling fertilizers, crop chemicals, seeds and services directly to farm customers.
NTR had a solid third quarter with net earnings of $726 million, up from a loss of $587 million in the year-ago quarter. Revenue jumped 43.3% year-over-year due to higher sales in all segments and strong demand for crop inputs.
Nitrogen prices also rose, driven by the strength in global agriculture markets. This led to a revenue surge of 121% year-over-year for the nitrogen segment. NTR is also gaining on high potash sales volumes this year due to strong domestic and overseas demand, driven by higher crop commodity prices. Nutrien also announced plans to increase its potash production in response to the demand.
This dynamic prompted several analysts to upgrade their outlook on Nutrien shares. UBS (Buy) raised its 2021, 2022 and 2023 earnings and EBITDA estimates, and also raised its price target to $88 per share from $81.
The POWR Ratings system gives NTR a B-rated Buy rating, due in part to its Growth Grade of B. The company's sales have grown an average of 38.8% per year over the past five years, and analysts are forecasting revenue to rise 64.1% year-over-year in the current quarter.
NTR also earns a Value Grade of B. In other words, it's one of the cheapest materials stocks heading into 2022, with a forward P/E of only 9.2. Plus, its price-to-tangible book value is only 4.3, compared to the industry average of 31.9. Get the complete POWR Ratings analysis for Nutrien (NTR) here.
Reliance Steel & Aluminum
- Market value: $9.8 billion
- Dividend yield: 1.7%
- POWR Ratings overall rating: B (Buy)
- POWR Ratings average broker rating: 1.62
Reliance Steel & Aluminum (RS, $156.83) is a metal service center in the U.S. that provides metal processing and inventory management services for carbon, stainless steel, aluminum and alloys. The company predominantly supplies the nonresidential construction, automotive, aerospace, energy, transportation and heavy equipment end markets.
It recently reported strong results for the third quarter. Adjusted EPS came in at $6.15, up a whopping 228.9% from the year prior. Sales even hit record levels for the quarter, jumping 84% year-over-year due to a favorable pricing environment and high demand in many end markets. This was especially true in nonresidential construction, its largest market.
Due to strong bidding activity, management expects this to continue for the rest of the year and into 2022. RS should also benefit from an expansion in the automotive, appliance and packaging end markets heading into next year. Plus, investments in new processing capabilities have allowed the firm to increase the percentage of orders.
Strong demand is also driving metal prices higher, which should aid the firm's revenue and margins.
The POWR Ratings system pegs RS as another one of the B-rated Buy materials stocks. The company earns a Growth Grade of B, which makes sense since earnings per share have grown an average of 32.3% per year over the past five years. Plus, earnings are expected to rise 155.2% year-over-year in the current quarter.
RS also garners a Quality Grade of B due to a solid balance sheet. The company's $638 million cash balance at the end of the third quarter compares favorably to only $54 million in short-term debt. Its low debt-to-equity ratio of 0.3 is encouraging, too. See Reliance Steel's (RS) complete POWR Ratings analysis here.
ArcelorMittal
- Market value: $25.9 billion
- Dividend yield: 1.1%
- POWR Ratings overall rating: A (Strong Buy)
- POWR Ratings average broker rating: 1.29
ArcelorMittal (MT, $27.52) is one of the world's leading steel and mining companies. It has customers in 160 countries with a portfolio of competitive steel plants in developed and emerging markets, though most of its revenue comes from Brazil. Its products are sold primarily to customers in the automotive, general and packaging sectors.
Like many other steel companies, MT had a solid third quarter, driven by a strong pricing environment. Sales rose due to a massive increase in average steel selling prices and higher iron ore prices. The company has also been cutting costs. For example, management implemented a $1 billion fixed-cost reduction program to aid its bottom line.
MT has been focused on cost efficiency through reducing debt and footprint optimization. The company is also expanding its steel-making capacity and shifting to high-added-value products, including its automotive steel line. For instance, the company expanded its automotive steels portfolio by launching a new generation of advanced high-strength steel.
ArcelorMittal is the first of the materials stocks featured here to earn an overall grade of A in the POWR Ratings system, which translates into a Strong Buy. The company boasts a Growth Grade of A as earnings per share have risen an average of 29.4% per year over the past three years and are expected to soar to $3.80 in the current quarter from 19 cents in the year-ago period. Check out the complete POWR Ratings for ArcelorMittal (MT) here.
"We expect a continuation of strong shareholder returns in 2022 and 2023," says Deutsche Bank analyst Bastian Synagowitz, who rates MT stock a Buy. "Although we believe that steel margins have passed their peak volatility and energy prices as well as macro are weighing on sentiment, we continue to expect an above-midcycle environment over the next few years, driven by apparent demand recovery, tight Chinese export policy and capacity restrictions."
Chemours
- Market value: $5.1 billion
- Dividend yield: 3.2%
- POWR Ratings overall rating: A (Strong Buy)
- POWR Ratings average broker rating: 1.62
Chemours (CC, $31.04) is a global provider of chemicals. It delivers customized solutions with a wide range of industrial and specialty chemicals products for various markets. Its major products include titanium dioxide, refrigerants, industrial fluoropolymer resins and sodium cyanide.
The company is seeing a lot of growth from the adoption of its Opteon platform. Opteon is a refrigerant with the world's lowest global warming potential. CC is committed to increasing its adoption due to the high demand for mobile and stationary applications. In 2019, Chemours built a new Opteon facility in Corpus Christi to triple its capacity to meet this increased demand. Opteon should also see more revenue as the auto industry recovers.
CC is also benefiting from strong performances in its glycolic acid and mining solutions divisions. Plus, volume in its titanium technologies business should thrive due to the demand for architectural coatings. The recently passed infrastructure legislation is also expected to spur construction spending and coatings demand. This bodes well for the company's future.
"Chemours has done a good job of navigating through the pandemic, and we expect it to benefit from its broad global footprint and improving industry conditions," says Argus Research analyst David Coleman (Buy), but he notes that a weakening of the global economy would weigh on CC, just like most other materials stocks.
Chemours is another one of the best materials stocks in the POWR Ratings system, with an overall A rating (Strong Buy). It has a Value Grade of A, prompted by a paltry forward P/E of 6.9. Its price-to-sales ratio of 0.9 is also very attractive, as is its EV/EBITDA (enterprise value-to-EBITDA) below 10. To see the complete POWR Ratings analysis for Chemours (CC), click here.
Kronos Worldwide
- Market value: $1.7 billion
- Dividend yield: 5.0%
- POWR Ratings overall rating: A (Strong Buy)
- POWR Ratings average broker rating: 1.00
Kronos Worldwide (KRO, $14.48) manufactures and sells titanium dioxide (TiO2) pigments. Titanium dioxide is a white inorganic pigment for plastics such as packaging materials and food packaging, houseware, appliances, toys, and computer cases. The majority of KRO's sales come from titanium dioxide used for coatings on automobiles, aircraft, machines, appliances, traffic paint and commercial and residential interiors and exteriors.
In the most recent quarter, the company recorded profits of $36 million, up from $8.1 million in the year-ago quarter. Profits were driven by higher sales volumes and increased average TiO2 selling prices.
In fact, KRO should gain from higher demand for TiO2 going forward. Demand for TiO2 has grown over the last several years due to strong consumption in Western Europe and North America. Plus, the markets for titanium dioxide are increasing in South America, Eastern Europe and Asia-Pacific. The development of new products and the improvement of existing facilities bode well for its future prospects.
Deutsche Bank's Begleiter noted that cost pressures will probably limit Kronos' fourth quarter, but maintains his Buy rating "as TiO2 fundamentals remain strong."
The POWR Ratings system gives KRO an A rating, which translates into a Strong Buy, putting it among the market's best materials stock picks. KRO is one of the cheapest sector plays, too. A price-to-sales ratio of 0.9 and a price-to-tangible book value ratio of 2.0 help earn it a Value Grade of A. To see the complete POWR Ratings analysis for Kronos (KRO), click here.
Methanex
- Market value: $3.2 billion
- Dividend yield: 1.2%
- POWR Ratings overall rating: A (Strong Buy)
- POWR Ratings average broker rating: 2.00
Methanex (MEOH, $41.81) manufactures and sells methanol. Its customers use methanol as a feedstock to produce end-products, including adhesives, foams, solvents and windshield washer fluids. The company also sells its products to the oil refining industry, where the methanol is blended with gasoline to produce a high-octane fuel or used as a component of biodiesel.
MEOH distributes its products through a global supply chain that includes the operation of port terminals, tankers, barges, rail cars, trucks and pipelines. The tight methanol market and industry supply bottlenecks are driving prices higher, which led to a solid quarter for the company. Its adjusted EBITDA increased more than sixfold when compared to the year prior.
Management expects methanol prices to be much higher in the current quarter, which should help drive MEOH's bottom line. The company also restarted production at its Chile IV plant last month, which will lead to higher fourth-quarter production. Plus, the restarting of its Motunui plant in New Zealand over the summer will likely translate into higher adjusted EBITDA in the fourth quarter as well.
Methanex is one of the best materials stocks to buy for 2022, per its A (Strong Buy) rating in the POWR Ratings system. The company has a Growth Grade of B as sales jumped 52.4% over the past year and are expected to rise 54.2% for the year. Earnings are forecast to jump to $1.23 per share in the current quarter, compared to a loss of $1.03 per share in the year-ago period.
BMO Capital Markets analyst Joel Jackson thinks investors are overlooking Methanex to their detriment: "Despite methanol touching 13-year highs, MEOH seems underappreciated," says Jackson, who rates the stock at Outperform (equivalent of Buy).
Methanex also has a Quality Grade of B. The company's cash balance of $932 million jumped from the second quarter and compares favorably to only $11.6 million in short-term debt. Get the full POWR Ratings analysis for Methanex (MEOH) here.
Olin
- Market value: $9.3 billion
- Dividend yield: 1.4%
- POWR Ratings overall rating: A (Strong Buy)
- POWR Ratings average broker rating: 1.58
Olin (OLN, $58.17) manufactures and sells a variety of chemicals and chemical-based products. It sells products through three segments, but its Chlor Alkali Products and Vinyls segment generates the most revenue. It sells chlorine and caustic soda used in various industries, including cosmetics, textiles, crop protection and fire protection products. OLN's Epoxy segment sells epoxy resins used in paints and coatings.
In its most recent quarter, revenue in its Chlor Alkali Products and Vinyls segment rose 40% from the year prior, while sales in its Epoxy division improved 84% – thanks in part to higher prices. Management expects an increase in revenue in the Chlor Alkali Products and Vinyls segment going forward.
In addition, the Winchester segment sells sporting ammunition and ammunition accessories. In the most recent quarter, revenues in this division surged 94% year-over-year due to increased commercial and military sales and higher commercial ammunition pricing. A significant driver of the growth is a multi-year contract to operate the government-owned Lake City ammunition facility.
OLN is also benefiting from strategic investments in information technology (IT). A recent IT infrastructure project is expected to maximize cost-effectiveness and efficiency.
Olin's overall grade of A (Strong Buy) in the POWR Ratings system includes a Growth Grade of B. Revenues are expected to surge 42% year-over-year in the current quarter and 52.9% for the year. Earnings look even better, with an expected swing to $8.53 per share in fiscal 2021 compared to a per-share loss of $1.11 in 2020.
OLN also has a Quality Grade of B due to solid fundamentals.The firm's return on equity of 40.1% indicates management efficiency, and its current ratio of 1.5 tells us that the company has more than enough liquidity for short-term obligations. See the complete POWR Ratings for Olin (OLN) here.
CFRA analyst Richard Wolfe views Olin as one of the best materials stocks as we head into 2022.
"We acknowledge OLN as our top commodity chemical pick given the company's ability to capitalize on its value-based model, reflected by strong EBITDA and free cash flow growth," he says. "We believe this will support further debt reduction (OLN targets $1.1 billion for 2021), returning excess cash to shareholders, and opportunities for M&A."
Univar Solutions
- Market value: $4.6 billion
- Dividend yield: N/A
- POWR Ratings overall rating: A (Strong Buy)
- POWR Ratings average broker rating: 1.60
Univar Solutions (UNVR, $27.05) manufactures and sells a variety of specialty chemicals and chemical-based products. Customers include various end-users, namely those in coating and adhesives, agriculture, chemical manufacturing, cleaning and sanitization, personal care, mining industries and more. It also offers a range of services, including automated tank monitoring, chemical waste management and specialty chemical blending.
The company reported a solid third quarter despite tight supply-chain challenges. Sales growth was boosted by the impact of chemical price inflation and higher industrial demand. In fact, UNVR has benefited from chemical price inflation since the second quarter, and management expects this to continue next year.
Univar is also gaining from market expansion and acquisitions. For instance, its 2019 buyout of Nexeo Solutions enhanced its capabilities and accelerated its ability to create value for customers. The acquisition is also expected to add $120 million in synergies by Q1 2022.
"Having completed the Nexeo integration (and further portfolio optimization), the company is re-focused on growth with a higher quality portfolio mix, and a number of new tools to enable higher profit conversion," says UBS (Buy). "We continue to see UNVR stock as undervalued, with our base case driven by earnings growth (~25% upside), and upside (+60%) on a re-rate following improved execution."
The POWR Ratings system pegs UNVR as one of the best materials stocks for 2022, with an overall A (Strong Buy) rating. The company has a Growth Grade of A as analysts expect EPS to soar 70.4% year-over-year in the current quarter and 64.8% for the year. Check out the full POWR Ratings analysis for Univar (UNVR) here.
Westlake Chemical
- Market value: $12.6 billion
- Dividend yield: 1.2%
- POWR Ratings overall rating: A (Strong Buy)
- POWR Ratings average broker rating: 1.64
Westlake Chemical (WLK, $98.36) is a vertically integrated manufacturer and marketer of basic chemicals, vinyls, polymers and building products. Its products are used for flexible and rigid packaging, automotive products, coatings, water treatment, refrigerants, residential and commercial construction.
The company recently reported record profits in the third quarter of 2021. Sales rose 61% year-over-year as WLK benefited from the global economic rebound, increased prices, and improved margins. This has been especially true for PVC resin. The company also saw high demand for building and construction materials.
In addition, WLK is benefiting from its 2016 acquisition of Axiall, a manufacturer and marketer of chlorovinyls and aromatics. The buyout helped Westlake diversify its product portfolio and geographical footprint. The company also should enjoy upside from its recently announced $1.2 billion acquisition of Hexion's epoxy and specialty resin business.
"While the growth rate of the platform is likely to prove modest, the vertical integration of the business into WLK's chlor-alkali platform should result in synergies, modestly reduce the volatility of the business, and provide optionality," says BMO Capital Markets analyst John McNulty. "The acquisition should also be solidly accretive to earnings and cash flow."
Westlake is also seeing favorable demand trends for polyethylene, which are expected to continue in the food packing industry. Rising housing starts also bode well for its downstream vinyl products business.
WLK has an overall grade of A, which translates into a Strong Buy in the POWR Ratings system, identifying it as one of the best materials stocks to buy for 2022.
That stems in part from a Growth Grade of A. Analysts expect revenue to jump 47.1% year-over-year in the current quarter and near 50% for the full fiscal year. Plus, earnings are projected to soar to $4.39 per share this quarter from 87 cents per share in the year-ago period. Similar growth is expected for the full year.
Westlake Chemical also has a Value Grade of B, which makes sense given its trailing P/E of 8.6 and a forward P/E of 7.7. Additionally, the company's price-to-sales and price-to-book ratios of 1.2 and 1.7 are both well below the industry averages of 2.2 and 3.2, respectively. See Westlake's (WLK) complete POWR Ratings analysis here.
