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Materials stocks are essential to the metabolism of society because this sector is responsible for producing the raw materials used by all other sectors of the stock market.
The Trump administration’s policies skew the pitch in favor of domestic producers so this class of stocks has sparked interest among most investors. You can diversify your portfolio and add to your financial growth by trading these 5 select basic materials stocks that could outperform their earnings estimate.
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Overview: Basic Materials Stocks
Basic materials stocks represent companies dealing with the discovery, development and processing of raw materials. This includes companies that make or process construction materials, chemicals, paper, glass, packaging products and forest products as well as minerals, metals and mining companies.
All stocks across this sector are very sensitive to the world economy. The sector tends to perform strongly at the beginning of an economic recovery. The companies may also weaken as the business cycle makes a transition from sharp recovery to stable expansion. Cyclical in its movements, investors often ignore this sector because it’s small or not ideal for their investing style. Basic materials make up the smallest sector exposure in the S&P 500’s 11 industrial segments — it weighs just over 2%.
For most commodities, the supply of basic materials is in geographical areas of marginal economic development and political uncertainty. As a result, the harvesting of natural resources like metals, coal and timber lends the sector greater exposure to 3rd world countries.
Best Online Brokers for Basic Materials Stocks
To start trading basic materials stocks, you’ll need to open a brokerage account with a discount or full-service broker. An online broker can help you identify the best stocks in the basic materials sector as well as provide the platform and tools to trade. Any of the online brokers on this list can help you on your investment journey.
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
- Active traders
- Intermediate traders
- Advanced traders
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Intuitive trading platform with technical and fundamental analysis tools
- Does not support trading in mutual funds, bonds or OTC stocks
Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.
Get started right away by downloading Moomoo to your phone, tablet or another mobile device.
- Cost-conscious traders
- Active and Advanced traders
- Over 8,000 different stocks that can be sold short
- Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
- No minimum deposit to open an account.
- No chat support
E*TRADE is an online discount trading house that offers brokerage and banking services to individuals and businesses. One of the first brokers to embrace online trading, E*TRADE not only survived both the dot-com bubble and Recession — it thrived. You can choose from two different platforms (one basic, one advanced). E*TRADE is a suitable broker for traders of most skill levels, whether you want to buy mutual funds and hold them for decades or dabble in options swing trading. E*TRADE offers a library of research and education materials to help you out.
- Active traders
- Derivatives traders
- Retirement savers
- Sophisticated trading platforms
- Wide range of tradable assets
- Exceptional customer service
- Limited currency trading
- Higher margin rates than competitors
- No paper trading on its standard platform
This latest groundbreaking technology is IBKR GlobalAnalyst, a new trading tool that helps investors compare the rate of PEG or price-earnings growth valuations and provide more immediate and comprehensive financial metrics of stocks, globally.
Recognizing that stock selection can be challenging for investors to compare the valuations of domestic and international stocks, Interactive Brokers created GlobalAnalyst to offer investors a simple, yet powerful tool to easily evaluate investment opportunities around the world.
Using GlobalAnalyst, investors can search for stocks by region, country, industry, market capitalization and currency to uncover undervalued stocks worldwide. The resulting table displays the current market and financial metrics, including the PEG Ratio. The PEG Ratio is the PE ratio divided by the three-year compound earnings growth rate, and smaller PEG Ratios typically indicate undervalued companies.
- Price earnings growth valuations
- Easily evaluate investment opportunities
CenterPoint Securities is ideal for active traders who demand access to advanced tools and services. While investors and casual traders are likely to be content with the basic offerings of traditional online brokerages, active traders will benefit from CenterPoint’s suite of advanced trading tools. If you value execution quality, access to short inventory, advanced trading platforms, and accessible customer service, CenterPoint is an excellent choice.
- Intermediate to Advanced traders
- High-volume traders
- Momentum traders
- Short sellers
- Unrivaled access to short inventory
- Flexible order routing for improved executions
- Discounts for active traders
- Advanced platform with fast executions
- Reliable customer service
- Not designed for beginner or low-volume traders
Features to Look for in Basic Materials Stocks
- Earnings growth is an important screening criterion when choosing a company to invest in. When you own stock, you take part in the growth of the underlying company, as measured by the earnings per share (EPS) growth. The earnings growth can be measured over various time frames, like year-over-year or a 5-year average. Filter out stocks with negative or declining earnings growth. A positive EPS indicates profitability.
- Debt-equity ratio primarily measures a company’s financial strength. It’s the percentage of a company’s total capitalization owed to others versus the shareholders’ equity. A lower debt-equity ratio is better. As a reasonable rule of thumb, consider companies that have a debt-equity ratio less than 50%.
- The position in the economic cycle also affects the demand for basic materials. Basic materials stocks suffer when the economy weakens and thrive when market conditions are on the upswing. Choose your entry point wisely.
Trade Basic Materials Stocks
The basic materials sector has been susceptible to changes in the global economy. Even as revenue and earnings drop, it’s difficult to resist buying top stocks when prices plummet. Investing in the materials sector might seem like a bad idea at the moment, but an economic rebound triggers demand, the 5 stocks we highlighted will see a boom. Basic materials is a cyclical sector — be sure to do your homework before putting your money there. Don’t risk it all until there’s more clarity to the economy.