A stack of metal pipes.

Investing in materials stocks

From construction materials like steel and cement to industrial metals, chemicals and packaging, the materials sector encompasses an array of indispensable components essential for modern economies. In this article, we discuss the ins and outs of the materials sector, key players in the industry and ways you can invest in it.

Understanding materials stocks

Materials are the backbone of any economy. As the global population expands, urbanisation escalates and industrial activities thrive, the demand for materials skyrockets, potentially offering substantial returns for investors. Materials are essential to various industries, including construction, manufacturing, infrastructure development, energy, technology and even healthcare.

Materials stocks are shares of companies operating within the materials industry. These stocks represent ownership in companies that deal with the production and supply of essential raw materials.

Examples of materials stocks

Materials stocks can include companies involved in chemicals, construction materials, metals and mining, paper and packaging and other related sectors. Investing in materials stocks can provide exposure to the global economy and can be influenced by factors such as industrial demand, commodity prices and technological advancements.

Here are three examples of materials stocks:

  1. Nucor Corporation (NUE): Nucor is a prominent steel producer in the United States, specialising in creating innovative, environmentally friendly steel products. The company focuses on sustainable practices and has a strong track record of steady growth and dividends.
  2. Freeport-McMoRan Inc. (FCX): Freeport-McMoRan is a leading international mining company that specialises in copper, gold and molybdenum production. With a diversified portfolio of mining assets and a strong position in the industry, Freeport-McMoRan offers potential for investors seeking exposure to the materials sector.
  3. Air Products and Chemicals, Inc. (APD): Air Products is a renowned industrial gases company, supplying a range of gases, chemicals and equipment to various industries. With a global footprint and strategic partnerships, the company offers strong growth potential in the materials sector.

How to invest in materials stocks

If you are considering investing in materials stocks, there are several ways to go about it. One option is to invest directly in individual materials stocks by purchasing shares through a brokerage account. Another option is to invest in ETFs that focus on the materials sector.

When choosing specific materials stocks to invest in, it's important to conduct thorough research. You can look for companies with strong financials, a solid track record and positive growth prospects. Factors, such as market demand for their products, competitive advantage and management expertise can help you when looking to invest in materials stocks.

Are materials stocks a good investment?

Materials stocks often offer a level of stability and long-term growth potential. Many material companies have established themselves as leaders in their respective industries, benefiting from economies of scale and extensive distribution networks.

Advancements in technology and innovation within the materials sector can lead to increased efficiency, cost savings, and competitive advantages for companies, contributing to potential stock value appreciation over time.

While materials stocks can offer attractive opportunities for growth and potential dividends, they also come with risks. Price volatility, currency fluctuations and changes in supply and demand dynamics can affect the performance of materials stocks.

Pros & cons of investing in materials stocks

Like any investment, materials stocks have their advantages and disadvantages. Here are a few key points to consider:

Pros of investing in materials stocks:

  • Stable demand: As essential components of various industries, materials stocks tend to enjoy stable and consistent demand, providing a potentially reliable revenue stream.
  • Global economic growth: With the expansion of economies worldwide and increasing urbanisation, the demand for materials is anticipated to rise, offering growth opportunities for materials stocks.
  • Diversification: Investing in materials stocks can provide diversification within a portfolio, reducing risk exposure by incorporating assets from different sectors, such as construction, manufacturing and energy.
  • Inflation hedge: Materials stocks can act as a hedge against inflation, as prices of raw materials often rise during periods of inflation, driving up the value of related stocks.
  • Dividend potential: Many material companies distribute regular dividends, making them attractive options for income-focused investors looking for a steady stream of cash flows.

Cons of investing in materials stocks:

  • Business cycle sensitivity: Materials stocks are generally sensitive to economic cycles, as their performance is closely tied to overall economic growth. During economic downturns, these stocks may experience a decline in demand and profitability.
  • Price volatility: Materials stocks can be subject to price volatility due to factors such as commodity price fluctuations, geopolitical events, and shifts in supply and demand dynamics, making them prone to short-term price fluctuations.
  • Dependency on commodities: Materials stocks heavily rely on the price and availability of commodities like metals, energy sources, and agricultural products. Any disruption or fluctuations in commodity markets can impact the performance of materials stocks.
  • Environmental regulations: Increasing environmental regulations and concerns can pose challenges for materials stocks, as they may need to invest in costly emissions reduction measures or face restrictions on resource extraction.
  • Technological disruptions: Advancements in technology may pose a threat to certain materials stocks. For example, the development of alternative materials or innovative production methods could decrease the demand for traditional materials over time.

Investing in materials ETFs

To tap into the potential of materials stocks while minimising risk, one popular avenue for investors is investing in materials exchange-traded funds (ETFs). ETFs provide a convenient option for diversifying your portfolio and gaining exposure to a broad range of materials stocks, spreading risks associated with individual stock selection. These funds pool investor resources and invest in a diversified mix of materials stocks, aiming to replicate the performance of a materials index.

Some materials ETFs we offer on our platform:

Name ISIN
SPDR MSCI World Materials UCITS ETF IE00BYTRRF33
Xtrackers MSCI World Materials UCITS ETF 1C IE00BM67HS53
iShares S&P 500 Materials Sector UCITS ETF USD Acc IE00B4MKCJ84
Global X Disruptive Materials UCITS ETF USD Acc IE000FP52WM7
SPDR MSCI Europe Materials UCITS EFT IE00BKWQ0L68

Note: Some ETFs may not be available on our platform for your country (temporarily) due to regulatory reasons.

Key takeaways

  • The materials sector includes companies involved in the extraction, processing and production of raw materials, such as metals, chemicals and construction materials.
  • The materials sector includes companies involved in the extraction, processing and production of raw materials, such as metals, chemicals and construction materials.
  • You may want to consider factors such as market demand, competitive advantage and management expertise when choosing to invest in materials stocks.

Investing with DEGIRO

We want to make investing accessible to everyone by offering incredibly low fees. For details, please visit our Fees page.

On top of low fees, you get access to one of the largest universes of products and exchanges. For an overview of the products and exchanges we offer, please visit our Markets page.

Open an account

The information in this article is not written for advisory purposes, nor does it intend to recommend any investments. Please be aware that facts may have changed since the article was originally written. Investing involves risks (e.g, price volatility, currency or liquidity risk). You can lose your invested funds. Consider your knowledge and experience when making investment decisions. Past performance is not a reliable indicator of future results. Markets are volatile and can fluctuate significantly due to economic, political, regulatory, or other developments.

Sources: Forbes, Yahoo Finance, Investopedia, Morningstar

Back

Get started with investing in 10 lessons

Investor's academy academy

Start investing today

Open an account for free invest
backtotop

Your investment journey starts here

Open an account for free and join over 2.5 million investors on our user-friendly platform.

Note:
Investing involves risks. You can lose (a part of) your invested funds. We advise you to only invest in financial products which match your knowledge and experience. This is not investment advice.

Investing involves risks.

icon_close

We want to empower people to become the best investors they can be. By offering a universe of possibilities and choices on our user-friendly platform, we are removing barriers to make investing accessible to everyone: beginners or experts. You get access to a wide variety of products on more than 50 global exchanges to have the freedom to invest the way you like. In our world, you also get great value for money. So, without compromising an inch on the quality, security and range of our investment services, we offer incredibly low fees. Prioritising your needs has helped us become the leading European online broker. Our 2.5+ million clients and 100+ international awards are proof of our success.

flatexDEGIRO Bank Dutch Branch, a foreign branch of flatexDEGIRO Bank AG | Amstelplein 1, 1096HA Amsterdam | phone: +31 20 2613072 | e-mail: clients@degiro.ie | flatexDEGIRO Bank Dutch Branch is registered with the Dutch Chamber of Commerce under number 82510245. | flatexDEGIRO Bank Dutch Branch, trading under the name DEGIRO, is the Dutch branch of flatexDEGIRO Bank AG. flatexDEGIRO Bank AG is primarily supervised by the German financial regulator (BaFin). In the Netherlands, flatexDEGIRO Bank Dutch Branch is registered with DNB and supervised by AFM and DNB. | flatexDEGIRO Bank AG is a licensed German bank supervised by the German financial regulator and registered with the German Chamber of Commerce under number HRB 105687.