Basic Materials represents companies that are involved with the discovery, development and processing of raw materials. This also includes the mining and refining of metals, chemical producers and forestry products. Since the sector supplies materials for construction and manufacturing, it is no surprise that its performance is cyclical in nature. (For related reading, see The Ups And Downs Of Investing In Cyclical Stocks) This typically occurs in the early recovery stage, when consumer expectations rise, industrial production grows, interest rates bottoms out and the yield curve steepens.
Over the course of this year, escalating raw material prices have sent many basic material stocks soaring. Notably would be stocks related to gold, which have consistently hit new all time highs throughout the year. Unlike most other basic materials, the run up in gold has not been attributed to a higher demand as a result of manufacturing. Rather, the demand has been in due part to cautious investors who are unsure of the stability of the recovery. Thus, they have decided to hedge their bets by buying gold for the purposes of having a stable store of value during possible rough times.
Nevertheless, investors who had exposure into the basic materials sector via the PowerShares Dynamic Basic Material ETF (NYSE:PYZ) would have received about a 3.74% return year to date. However, picking individual basic materials stocks could have yielded substantially higher returns. Here are 6 basic materials stocks that have returned triple digit returns this year.
|Company||Market Cap (Billions)||YTD % Gain|
|Extorre Gold Mines Ltd. (NYSE:XG)||1.01B||+88.45%|
|Delek US Holdings Inc. (NYSE:DK)||0.793B||+87.50%|
|Alon USA Energy, Inc.(NYSE:ALJ)||0.579B||+73.90%|
|Frontier Oil Corp.(NYSE:FTO)||3.23B||+69.18%|
As the economy improves, it could be a strategically profitable time to add a basic materials position to your portfolio that may even potentially yield triple digit returns in the future.
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