Basic Materials Sector: Value Investing Analysis

About the Basic Materials Sector

Companies that manufacture chemicals, building materials, and paper products. This sector also includes companies engaged in commodities exploration and processing. Companies in this sector include ArcelorMittal, BHP Billiton, and Rio Tinto.

The Basic Materials sector groups related businesses that share similar economic characteristics, market dynamics, and competitive forces. By analyzing stocks within this sector, you can compare companies on a more level playing field—making it easier to identify which businesses offer the best value for your investment dollars.

Understanding sector performance helps you evaluate whether individual stocks are cheap or expensive relative to their peers. A P/E ratio that looks high in one sector might be a bargain in another. This context is essential for value investors seeking to calculate realistic expected returns.

Basic Materials Stocks: Value Analysis

Below are the stocks we track in the Basic Materials sector, with key value investing metrics. If you have special knowledge about this sector, you have an advantage—use these metrics to find stocks that may be trading below their intrinsic value.

Discounted stocks in the index
Company Current Price Current Price Discount
10 years
Barrick Gold Corporation
(GOLD)		 $34.79 none
DuPont de Nemours
(DD)		 $41.07 none
Kraton Corporation
(KRA)		 $46.49 none
Resolute Forest Products
(RFP)		 $21.05 none
Fletcher Building Limited
(FCREY)		 $6.44 none
Callinex Mines
(CLLXF)		 $1.68 none
P. H. Glatfelter Company
(GLT)		 $3.33 80%
Schnitzer Steel Industries
(SCHN)		 $32.26 none
Hummingbird Resources PLC
(HUMRF)		 $0.10 none
Chase Corporation
(CCF)		 $83.91 none
China Green Agriculture
(CGA)		 $4.88 80%

How to Invest in Basic Materials Stocks

Sector-Specific Considerations

When evaluating Basic Materials companies, consider these key factors:

  • Sector fundamentals: Is this sector growing, mature, or declining? Growth prospects affect reasonable earnings forecasts.
  • Economic sensitivity: How does this sector perform in different economic conditions? Understanding cyclicality helps you time purchases.
  • Competitive dynamics: Are barriers to entry high or low? Strong moats protect profits and justify premium valuations.
  • Regulatory environment: Does government policy significantly impact this sector? Regulatory changes can create risks or opportunities.
  • Capital intensity: Does the business require heavy capital investment? Capital-light businesses often generate better returns.

✓ Sector Analysis Checklist

  • Compare P/E ratios within the sector
  • Look for strong free cash flow generation
  • Assess debt levels relative to peers
  • Evaluate dividend sustainability
  • Check management track record
  • Calculate margin of safety

Common Sector Pitfalls

  • Chasing last year's hot sector
  • Ignoring sector-wide headwinds
  • Overpaying for market leaders
  • Neglecting competitive threats
  • Failing to diversify across sectors
  • Not understanding the business model