The U.S. Consumer Price Index (CPI) rose 7.9% year-over-year in February 2022 to its highest level since 1982. The core inflation rose 6.4% from the year-ago value last month to reach 40-year highs due to unprecedented federal spending, continued supply chain bottlenecks, and global trade disruptions. To combat the skyrocketing inflation rates, the Federal Reserve hiked the benchmark federal funds rate by 25 basis points on March 16, marking the first rate hike since December 2018. The Fed also announced its plans to raise the benchmark rate six more times this year and three additional times in 2023.
The equity markets tend to have a bearish response to interest rate hikes, as borrowing costs eat away at the profit margins and shareholder returns. However, basic material stocks typically depict resiliency, as these companies pass on the higher costs to consumers. Moreover, as the commodity markets are volatile due to various import embargoes on Russia, basic materials companies are benefiting from the surging commodity prices. Also, the resumption of industrial and manufacturing activities following the pandemic-driven disruptions and the passage of the landmark $1.2 trillion infrastructure bill is expected to boost basic materials prices further in the near term.
With these factors in mind, here are the top basic materials stocks that are well-positioned to beat multi-decade high inflation: Anglo American plc (NGLOY), Southern Copper Corporation (SCCO), Dow Inc. (DOW), Corteva, Inc. (CTVA), and Steel Dynamics, Inc. (STLD).
Anglo American plc (NGLOY)
NGLOY is a UK-based mining company. It has a portfolio of mining operations and undeveloped resources focusing on diamonds, copper, platinum group metals (PGMs), iron ore, nickel, and manganese.
On March 18, NGLOY partnered with EDF Renewables to develop a regional renewable energy ecosystem (RREE) in South Africa. This partnership is expected to aid NGLOY in implementing 3-5 GW of renewable electricity and storage over the next decade by leveraging the decarbonization initiatives of the government.
On March 16, NGLOY successfully concluded its first sea trial using the blend of biofuel and very low sulfur fuel oil, reducing nearly 10% of carbon emissions from ocean freight. NGLOY’s sustainable operations are aligned with the economy’s long-term net-zero emission goals and are expected to attract ESG investors.
NGLOY’s revenue increased 63% year-over-year to $41.55 billion in fiscal 2021 (ended December 31). Its net profit grew 251.5% from the year-ago value to $11.70 billion, while its operating profit improved 212.4% year-over-year to $17.59 billion over the period. The company’s EPS increased 309.6% from the year-ago value to $6.84.
The stock has gained 49% over the past six months to close Friday’s trading session at $26.60.
NGLOY’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NGLOY has an A grade for Value and a B grade for Stability and Quality. Within the Industrial - Metals industry, it is ranked #8 of 37 stocks.
To see additional POWR Ratings for Sentiment, Growth, and Momentum for NGLOY, click here.
Southern Copper Corporation (SCCO)
SCCO is an integrated producer of copper and valuable by-products and operates the mining, smelting, and refining facilities in Peru, Mexico, and Chile. It operates through three segments: Peruvian operations; Mexican open-pit copper operations; and Mexican underground mining operations segment (IMMSA).
In the fourth quarter ended December 31, 2021, SCCO’s net sales increased 20.1% year-over-year to $2.82 billion. Its net income increased 41.1% from the year-ago value to $836.4 million, while its adjusted EBITDA grew 37.7% year-over-year to $1.73 billion. The company’s operating income came in at $1.53 billion, representing a 43.5% year-over-year improvement.
The consensus EPS estimate of $1.07 for the fiscal first quarter (ending March 2022) represents an 8.5% improvement year-over-year. The consensus revenue estimate of $2.73 billion for the current quarter represents an 8% increase from the same period last year. The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
SCCO has gained 31.2% over the past six months.
The company has an overall rating of B, which translates to Buy in our proprietary rating system. It is no surprise that SCCO has an A grade for Quality and a B for Stability. In the Industrial - Metals industry, it is ranked #10 of 37 stocks.
In total, we rate SCCO on eight different levels. Beyond what we’ve stated above, we have also given SCCO grades for Momentum, Value, Growth, and Sentiment. Get all the SCCO ratings here.
Dow Inc. (DOW)
DOW is a global material science solutions provider for packaging, infrastructure, mobility, and consumer applications. It also offers property and casualty insurance, as well as reinsurance business. The company operates through three segments: Packaging & Specialty Plastics; Industrial Intermediates & Infrastructure; and Performance Materials & Coatings.
On January 19, DOW launched innovative technologies tailored for the sustainable development of the auto sector at Automotive World 2022. The company highlighted its materials science expertise for vehicle electrification and showcased its expertise and commitment to the e-mobility and transportation industries through its MobilityScience platform. Given the gradual phase-out of fuel-driven vehicles and the ongoing EV boom, the demand for DOW’s mobility services is expected to skyrocket in the near term.
In the same month, DOW signed a multi-year agreement with Hope Energy to offer pyrolysis oil feedstock derived from recycled plastics collected in North America. With this agreement, DOW is expected to expand its global capabilities for circular plastics.
On February 10, Newmark Group, Inc.’s (NMRK) Global Corporate Services (GCS) renewed its multi-service, international contract with DOW to provide client-centric integrated solutions across six continents. This extension should boost DOW’s revenues and earnings substantially in the near term.
During the fourth quarter ended December 31, 2021, DOW’s net sales increased 34.2% year-over-year to $14.36 billion. Its operating EBITDA rose 64% from the year-ago value to $2.92 million. The company’s net income increased 40.4% year-over-year to $1.76 billion, while its EPS grew 40.6% from the prior-year quarter to $2.32.
Analysts expect DOW’s revenues to increase 20.8% year-over-year to $14.35 billion in the fiscal first quarter (ending March 2022). Its EPS is expected to increase 43.2% to $1.95 in the ongoing quarter. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past three months, the stock has gained 15.8% to close Friday’s trading session at $64.70.
DOW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. DOW also has an A grade for Value. The stock is ranked #11 of 88 stocks in the A-rated Chemicals industry.
Click here to see the other ratings of DOW for Growth, Quality, Sentiment, Momentum, and Stability.
Corteva, Inc. (CTVA)
CTVA is a global supplier of seed and crop protection solutions focused on the agriculture industry. The company operates through two segments: Seed segment; and Crop Protection. These segments also offer digital solutions to farmers to maximize their yield and profitability, herbicides, insecticides, nitrogen stabilizers, and pasture and range management herbicides.
On March 21, CTVA announced its plans of implementing a new business-unit organization model to leverage the company’s strengths and growth potential. According to CEO Chuck Magro, "Shifting to a business-unit focused model will facilitate increased focus, enhanced accountability and faster speed to market, while also leveraging the considerable global strengths of Corteva.”
On February 15, CTVA entered into an agreement with Marrone Bio Innovations, Inc. (MBII) to distribute Kinsidro Grow, a foliar bio nutrient, to European growers. This collaboration should expand CTVA’s global biological portfolio and achieve its 2030 sustainability goals.
CTVA’s net sales increased 8.5% year-over-year to $3.48 billion in the fourth quarter ended December 31. Its income from continuing operations grew 56.6% from the year-ago value to $155 million, while its net income improved 274.4% year-over-year to $161 million over the period. The company’s EPS increased 340% from the year-ago value to $0.22
Analysts expect CTVA’s revenue for the quarter ending March 31, 2022, to come in at $4.47 billion, representing a 7% year-over-year growth. Street expects the company’s EPS to increase 3.5% year-over-year to $0.82 in the ongoing quarter.
CTVA has gained 37.6% over the past six months.
CTVA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. CTVA also has a B grade for Quality. Among the 28 stocks in the Agriculture industry, it is ranked #4.
Click here to see the additional POWR Ratings for CTVA (Growth, Stability, Sentiment, Value, and Momentum).
Steel Dynamics, Inc. (STLD)
STLD is a diversified domestic steel producer and metals recycler in the United States. It operates through three segments: Steel Operations; Metals Recycling Operations; and Steel Fabrication Operations. The company is also exporting its products globally.
In January, STLD acquired a 45% equity stake in New Process Steel. Through this acquisition, STLD expanded its value-added manufacturing opportunities. This should allow the company to retain its position as an industry leader and continue to serve the highest quality steel and service in the market.
STLD’s net sales increased 104.2% year-over-year to $5.31 billion in the fourth quarter ended December 31, 2021. The company’s net income increased 456.3% from the year-ago value to $1.10 billion, while its operating income grew 452.3% year-over-year to $1.43 billion. STLD’s EPS rose 516.9% from the prior-year quarter to $5.49.
Analysts expect STLD’s EPS and revenue to increase 173% and 50.2% year-over-year to $5.73 and $5.33 billion, respectively, in the fiscal second-quarter ending March 2022. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of STLD rose 77.7% over the past year to close the last trading session at $89.49.
STLD has an overall rating of B, which translates to Buy in our proprietary rating system. Also, it has an A grade for Momentum and a B grade for Growth and Quality. Also, it is ranked #16 of 33 stocks in the A-rated Steel industry.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the STLD ratings for Sentiment, Value, and Stability here.
shares rose $0.04 (+0.01%) in after-hours trading Monday. Year-to-date, has declined -3.71%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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