Despite a shaky start to the year, the U.S. stock market has roared ahead and is now sitting within a few percent of its all-time highs.
In an interesting example of “reversion to the mean,” the best-performing sector over the past month (basic materials) is also the worst-performing sector over the past year. Basic materials is a cyclical sector including resource industries, chemicals and precious metals, which depends on a strong economy.
Many basic materials stocks found themselves beaten down when a U.S. recession looked likely, but are now springing back based on an improved economic outlook.
[See: 8 Soaring Stocks That Suffered the Big Bounce.]
We used the Recognia Strategy Builder to search for large-capitalization U.S. basic materials stocks that have strong four-week price performance, pay dividends and have low debt.
We began by setting a minimum market cap threshold of $2.5 billion. Next, we filtered based on four-week price performance. We included only stocks whose prices are up by 5 percent or more in the past month. To steer away from companies with high levels of debt, we limited the acceptable debt to equity ratio to 1 or less.
Last, to ensure we are paid to wait while our investments appreciate, we selected only companies with a dividend yield of 1.5 percent or greater.
Potash Corp. of Saskatchewan (ticker: POT). POT is the world’s largest producer of potash, a key crop nutrient used in fertilizer. Since hitting an all-time high in 2011, the stock has been on a long decline, bottoming at $14.84 on January 25. The stock is now up 8.4 percent in the past four weeks and up 14.6 percent from its January lows. With a 5.9 percent dividend yield and low 0.55 debt-equity ratio, this stock looks poised to reward patient investors.
Dow Chemical Co. (DOW). Dow Chemical is a multinational chemical conglomerate based in Midland, Michigan. It is the world’s third-largest producer of chemicals after BASF and Sinopec Shanghai Petrochemical Co. (SHI). Dow stock has been a star performer in 2016, up almost 30 percent from its January lows. In the past month, the stock has added 5.6 percent. In late April, the company announced first-quarter earnings which exceeded analysts’ expectations by a fairly wide margin. In the face of foreign exchange headwinds from its overseas operations, Dow also engaged in aggressive cost-cutting that enabled the company to improve its margins to their highest levels in more than a decade.
[See: 9 Ways to Harness the Growth of Latin America.]
Methanex Corp. (MEOH). Methanex a Canadian company specializing in the supply, distribution and marketing of methanol. Methanol has many industrial applications including as a solvent, fuel and antifreeze. Methanex has the highest four-week price performance on our list; up 14.8 percent in the past month. This is surprising given the company released first-quarter results in late April that missed on both revenue and earnings. Investors seem to be looking past this news and focusing on improving cash flow and projections of increased output.
Steel Dynamics (STLD). In the metals category, Steel Dynamics has a 7.7 percent return over the last four weeks. Steel Dynamics is based in Fort Wayne, Indiana, and is the fourth-largest producer of steel in the U.S. On March 16, the company announced good news, guiding first-quarter earnings expectations upward from the 19 cents per share expected to a range of 22 to 26 cents. The company also raised its quarterly dividend. STLD stock responded by moving more than 19 percent higher since the announcement.
Cabot Corp. (CBT). Cabot provides specialty materials products including adhesives, specialty coatings, rubber products and construction materials. With a market cap of just $3 billion, Cabot is one of the smallest companies to make our list. The company issued poor financial results in May and the stock dropped almost 8 percent the following day. In spite of this, the stock is still up 15.5 percent for the year and has turned itself around with a 5.9 percent gain in the past month. With businesses spanning a broad range of industrial segments, Cabot is poised to benefit from a prolonged uptrend in the U.S. economy.
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The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
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Nothing Basic About These 5 Basic Materials Stocks originally appeared on usnews.com
