The tech sector has remained reasonably unscathed by the coronavirus pandemic. Tech companies have gained immensely from stay-at-home orders, cloud computing and robust telecommunications infrastructure — demand for which skyrocketed amid the health crisis.
After widespread sell-off in February and March, the stock market bounced back on tech boom. In fact, the broader S&P 500 hit record highs in August. Notable tech behemoths like Apple and Google-parent Alphabet powered major indexes, while most of the stocks from other sectors lagged performance-wise.
Thanks to the stupendous growth, these tech giants have now become expensive. And eventually, the pricey S&P 500 technology sector has lost 8% so far in September. Meanwhile, the growth-heavy Nasdaq Composite, with greater weights in tech stocks, declined nearly 0.6% to 10793.28 on Sep 18.
In the meantime, sectors that are less pricey and that determines the broader health of the economy have now begun to outperform the pandemic-resistant tech sector. In particular, the value-oriented materials sector has added 6% so far this month.
The materials sector was also one of the S&P 500 index’s best-performing sectors this past week, up more than 4%. Additionally, the group has climbed 16% so far this quarter, the best performance among the S&P 500’s 11 sectors.
Some of the major companies in the materials sector including Linde, Air Products & Chemicals and Sherwin-Williams witnessed their shares jump around 5.4% this month. And some individual companies such as crop-nutrient producer Mosaic saw its shares surge 54% this quarter, while Freeport McMoRan has added 47%.
So, why has the materials sector started to outperform? The economic growth, mostly in the second quarter of this year, was appalling. Many companies including materials saw no sales growth. But since economic growth has started to pick up, the materials sector has started to show faster sales growth.
No doubt, economic recovery has boosted prices of commodities like oil and industrial metals. Lest we forget, the Fed now sees 4% GDP growth in the United States next year, followed by 3% growth in 2022. And with faster recoveries in China and Europe, economists are more hopeful about future growth.
Moreover, Fed’s assurance to provide support to markets and the economy helped material stocks outdo the broader market. The Bloomberg Commodity Index that provides exposure to commodities as an asset class has started to turn around after hitting its lowest in at least 20 years in March.
5 Top Stocks to Buy From the Materials Sector
With shares of companies that mine or make raw materials outpacing the once-loved technology stocks, it’s prudent to invest in fundamentally-sound material stocks for the time being. Gains among materials give us a better reading about the health of the economy. After all, rise in prices of lumber and steel indicates growing orders in industries like housing and autos, which will ultimately drive more activities in sectors like energy and banking.
We have thus selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
DAQO New Energy Corp. DQ is engaged in the manufacture and sale of high-quality polysilicon to photovoltaic product manufacturers. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 27.6% over the past 60 days. The company’s expected earnings growth rate for the current and next year is 348.5% and 48.2%, respectively.
Koppers Holdings Inc. KOP is an integrated global provider of treated wood products, wood treatment chemicals and carbon compounds. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has risen 42.8% over the past 60 days. The company’s expected earnings growth rate for the next quarter and year is 51.7% and 13.8%, respectively.
The Scotts MiracleGro Company SMG manufactures, markets, and sells consumer lawn and garden products in the United States. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved 22.6% north over the past 60 days. The company’s expected earnings growth rate for the current and next year is 60% and 5.6%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.
Element Solutions Inc ESI produces and sells specialty chemical products the United States. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has moved up 6.3% over the past 60 days. The company’s expected earnings growth rate for the next year is 15.5%.
Kraton Corporation KRA manufactures and sells styrenic block copolymers, specialty polymers, and other products. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has advanced 211.1% over the past 60 days. The company’s expected earnings growth rate for the next year is 325%.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
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Element Solutions Inc (ESI) : Free Stock Analysis Report
Kraton Corporation (KRA) : Free Stock Analysis Report
Koppers Holdings Inc. (KOP) : Free Stock Analysis Report
The Scotts MiracleGro Company (SMG) : Free Stock Analysis Report
DAQO New Energy Corp. (DQ) : Free Stock Analysis Report
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