Dig Deeper for The Hottest Sector’s Top Stocks

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

We talked a little last week about the post-pandemic sector map and how Big Tech needs time to refresh, while brick-and-mortar stocks risk getting ahead of themselves.

Now, let’s focus on an area of the market that deserves to lead Wall Street from here. The COVID-19 outbreak was only a fleeting interruption for materials-producing companies. From chemicals to mining, commodity stocks are tracking 28% higher earnings from 2019 to 2021.

That’s faster two-year growth than any other sector, including technology itself. As the noise around the pandemic recedes, the trend here is clear. And if you believe (like I do) that earnings ultimately drive shareholder wealth, the bulls have a lot to cheer in that growth trend.

Why Tech Lost Its Way

Of course, growth often comes at a price, which is why the clouds have gathered over Silicon Valley now. While Big Tech prospered in the pandemic, even their accelerated earnings expansion struggled to keep up with the stocks.

This is more than a feeling. The classic “strong buy” signal flashes when a stock carries a higher growth rate than its earnings multiple. Right now, technology stocks are a little below that threshold.

There are exceptions, as giants like Amazon.com Inc. (NASDAQ:AMZN) remain priced at bargains relative to their growth, but on the whole, the Nasdaq simply looks a little expensive.

That’s a problem when Wall Street has gotten into the habit of trading tech as a proxy on the pandemic economy. As vaccinations spread and people start getting out of the house, money needs to flow out of some of these companies.

Apple Inc. (NASDAQ:AAPL) and its peers are going to need at least a few months to change that narrative. In the meantime, the brick-and-mortar world is where Wall Street wants to go now.

Literal Bricks, Literal Mortar

Technology has become so ubiquitous in our lives that the traditional materials sector now accounts for less than 3% of the S&P 500 by market capitalization. But this is where the action is.

The housing boom and looming infrastructure program have triggered enormous interest in construction supplies companies. Inflation, meanwhile, has been a boost for precious metals and other miners.

Add it all up, and that’s how you get the 28% earnings lift across the pandemic. From bricks to copper to cement to chemicals, this 3% of the market is where the heat is.

And even so, the sector as a whole is still priced at less than 20X forward earnings. Higher growth than multiple? That’s a buy.

Of course, a lot of earnings expectations for 2021 and beyond are built around Congress agreeing to spend money on roads and other infrastructure. There’s always a risk that won’t happen.

But lumber, copper and other materials are in short supply because residential construction is as hot as it gets. That isn’t a factor of top-down politics. It’s happening, even as we speak.

I’m talking about all of this on my Millionaire Makers radio show (Spotify)(Apple) and video channel (YouTube). Subscribe now so you never miss an episode… or an opportunity!

And if you’re concerned about inflation ahead, commodities are the place to park money and preserve purchasing power. The sector is attractive on those terms.

Avoid the Biggest Producers

If you want to squeeze the most upside you can, you’ll need to pick specific stocks. That’s what we do every day in my Value Authority and newly launched Triple-Digit Trader. We rarely buy sectors.

We buy stocks. Looking at the materials sector, I’m not impressed with giants like Linde PLC (NYSE:LIN) and Sherwin-Williams Co. (NYSE:SHW).

While all corners of America are buying paint right now, SHW is already feeling the pressure of inflation in its own supply chain. Even though sales are up 8% this year, earnings are going in the wrong direction.

And while LIN makes the chemicals, 20% earnings growth this year isn’t enough to justify a 30X multiple. Great company. Overextended stock.

Air Products & Chemicals Inc. (NYSE:APD) is less of a prize at only 8% growth weighed against 36X earnings. Chemicals are hot but, like Big Tech, the stocks have simply been too hot.

What do I like? Freeport-McMoRan Inc. (NYSE:FCX) is the leading copper producer on the planet. Earnings are tracking 400% higher this year and that’s off a big growth base.

The stock is available for barely 14X earnings. I’d rather be here than in AMZN.

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE


img
previous article

Editor's Note: Because of my bike injury, I can now write with only one hand for the next couple of months. To help out, my dear wife Jo Ann has graciously written today's Skousen Cafe. My husband Mark and I were married in the spring of 1973 -- Patriots Day, to be exact. An unpopular war was winding down, and a president was being impeached. Inflation was heating up and production was slowing down. That summer, we were facing lettuce shortages, beef shortages and gas shor

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Profits Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • Intelligence Report
  • Bullseye Stock Trader
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Technical Traders Alert
  • Success Trading Group
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE