Top Materials Stocks for May 2023

Top materials stocks this month include Patriot Battery Metals Inc. (PMETF), Sigma Lithium Corp. (SGML), and NGEx Minerals Ltd. (NGXXF), the share prices of which have each more than doubled in the last year.

Materials stocks have underperformed the broader market in the past year amid volatile commodities prices. The benchmark Materials Select Sector SPDR Fund (XLB) fell 3% over the past 12 months, while the Russell 1000 Index rose by 4%.

Here are the top three materials stocks with the best value, the fastest growth, and the most momentum. All data in the tables below are as of May 11.

Best Value Materials Stocks

These are the materials stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you're paying less for each dollar of profit generated.

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• Cemex S.A.B. de C.V.: Located in Mexico, Cemex provides building materials such as ready-mix concrete, asphalt products, roofing tiles, drainage basin barriers, and concrete pipes for sewer systems. Cemex made headlines in March when competitor Vulcan Materials, the largest construction aggregates producer in the U.S., alleged Mexican police seized its quarry in the Mexican province of Quintana Roo and allowed Cemex to unload cargo at the site. Cemex leased part of the port until December when its agreement with Vulcan expired, and the companies failed to agree on a renewal.
• Ferroglobe PLC: Ferroglobe is a U.K.-based supplier of silicon and manganese-based alloys used for various products, from personal care items to electronics and construction materials. Falling prices and reduced metal and alloy production decreased earnings in the first quarter. Net income fell by 83% year-over-year, along with a 44% drop in revenue.
• Arch Resources Inc.: Arch Resources produces metallurgical products for steel industry applications.

Fastest Growing Materials Stocks

These are the top materials stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth.

Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 1,000% were excluded as outliers.

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• Albemarle Corp.: Albemarle is a manufacturer of bromine and lithium specialty chemicals. Albemarle has increased its dividend every year for three decades. On May 2, the company announced a quarterly dividend of $0.40 per share, payable July 3. Abemarle's net income surged nearly five-fold in the first quarter on increased sales volume. Though in May the company cut its earnings forecasts for the remainder of the year, citing lower lithium prices.
• Martin Marietta Materials Inc.: Martin Marietta is a company that supplies building materials for the construction industry. Martin Marietta has increased its dividend every year for seven years. On May 11, the company announced a quarterly dividend of $0.66 per share, payable on June 30. The company recorded record profits in the first quarter, with margins benefitting from a global shortage of sand, gravel, and cement.
• Sociedad Química Y Minera de Chile S.A.; Sociedad Química is a Chilean mining company that produces plant nutrients, lithium and iodine products, and industrial chemicals.

Materials Stocks with the Most Momentum

These are the materials stocks that had the highest total return over the past 12 months.

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• Patriot Battery Metals Inc.: Patriot Battery is a Canadian-based company that owns mineral properties for the exploration of lithium, copper, gold, and platinum deposits.
• Sigma Lithium Corp.: Sigma is a lithium mining company that operates four properties in southeastern Brazil.
• NGEx Minerals Ltd.: NGEx Minerals acquires, explores, and develops mineral properties in South America. The stock price has risen from $3 to nearly $5 since the beginning of April following the news that NGEx Minerals located a new zone of large amounts of copper, silver, and gold mineralization at their mine in San Juan Province, Argentina.
  

Advantages of Investing in Materials Stocks

Core Demand: Materials are the foundations of the global economy, required to build everything from microchips and luxury cars to lightbulbs and toilet paper. While the prices of certain materials rise and fall with supply and demand, companies in this sector enjoy a degree of demand stability that sectors like consumer discretionary, tech, and communications do not.

Portfolio Hedge: Materials companies that mine for precious metals, such as gold and silver, provide investors with a partial hedge against cyclical holdings in their portfolio, often outperforming during market downturns. During times of economic instability with higher inflation and interest rates, materials companies withstand difficulties with solid dividend growth and healthy cash flows.

Risks of Investing in Materials Stocks

Rising Costs: Materials companies face periods of rising costs that can crimp earnings, especially if they coincide with falling commodity prices. Mining and developing resources is capital intensive. Supply chain disruptions, rising fuel costs, and machinery maintenance can cause significant challenges, particularly during periods of spiking inflation. For example, pandemic-related shipping snarls in 2021 saw the benchmark price to ship copper in the U.S. reach its highest level since 2003.

Industrial Action: Certain industries within the material sector, such as mining, are heavily unionized, increasing the risk of industrial action that can temporarily suspend or reduce operations. A reduction in output has the potential to impact a mining company's earnings which can put downward pressure on its share price. In 2021, iron-ore mining giant Rio Tinto Group (RIO) had to reduce one of its mines to 25% capacity for several months due to strike action, which union officials claimed cost the company around $5 million daily.