3 Materials Stocks to Buy for Major Upside

Stocks to buy
  • Global X Copper Miners ETF (COPX): In two developments that will greatly boost demand for copper, the U.S. government is set to allocate a huge amount of funds to the electrification of transportation, while the renewable energy revolution is gathering momentum.
  • Lithium Americas (LAC): To meet its electric vehicle (EV) goals, the Biden administration has to enable more lithium mines to open in the U.S., and the company is looking to open a large lithium mine in Nevada.
  • Cleveland Cliffs (CLF): The steelmaker is benefiting from price hikes and strong demand from the automotive sector.
Source: Shutterstock

With the manufacturing sector still showing tremendous strength, and the U.S. government about to pour a large amount of funding into the country’s infrastructure, it’s a good time to focus on materials stocks. All of this is going on along with the ongoing energy transition, whose momentum is rapidly accelerating and will help the sector.

Additionally, because the value of many materials is determined by Wall Street traders, increases in inflation expectations generally cause the prices of these commodities to jump relatively quickly. Consequently, buying materials stocks is a good way to hedge against inflation.

With that in mind, let’s dive in and take a closer look at these three materials stocks to buy.

COPX Global X Copper Miners ETF $40.25
LAC Lithium Americas $25.42
CLF Cleveland Cliffs $27.87

Materials Stocks to Buy: Global X Copper Miners ETF (COPX)

Piece of copper set against black background

Source: Coldmoon Photoproject/Shutterstock.com

As a result of the bipartisan infrastructure law, the U.S. government will spend a great deal of money on “electrification for infrastructure, buildings, and fleets of government vehicles.” This, along with Washington looking to electrify its busses, means there will be a higher need for EV chargers. And since copper is the primary means of conducting electricity, the demand for the metal is likely to jump once the federal government starts getting large amounts of money appropriated by the infrastructure law out the door later this year.

That, of course, is good news for copper miners. However, it is a good, low-risk way to play that trend is through the Global X Copper Miners ETF (NYSEARCA:COPX).

Overall, copper is used extensively in renewable energy. And as Europe accelerates its transition to renewable energy, China also quickly adds new solar and wind projects and many other countries rapidly embrace this energy revolution, copper prices should climb.

In recent days, amid worries about China’s new novel coronavirus lockdowns and the Federal Reserves’ interest rate hikes, COPX stock has fallen sharply. However, the decline has just created a good buying opportunity for investors looking for the top materials stocks.

 Lithium Americas (LAC)

a lithium mine

Source: Shutterstock

To meet its aspirations in the energy sector, the U.S. needs to raise its supply of lithium tremendously. And to accomplish the latter goal, President Joe Biden’s administration will have to enable American companies to open lithium mines relatively quickly, despite opposition to the mines from some Native Americans and environmental activists.

Right now, lithium-ion batteries are currently being used to power most electric vehicles. Moreover, such batteries are also increasingly being utilized to store electricity.

In turn, this bodes well for Lithium Americas (NYSE:LAC), which is seeking to launch a large lithium mine in Nevada. According to its CEO, construction on the site could begin in late 2022. Given the high priority the Biden administration places on putting more EVs on America’s roads, the company will likely be able to meet that timetable. And with the demand for lithium exploding, the company will probably be extremely profitable two or three years down the road.

Materials Stocks to Buy: Cleveland Cliffs (CLF)

the Cleveland-Cliffs (CLF stock) logo displayed on a web browser and magnified by a magnifying glass

Source: Pavel Kapysh / Shutterstock.com

In a previous column, I cited contract renewals and strong demand from the automotive sector amidst the EV revolution as two reasons to be bullish on CLF stock.

In conjunction with its first-quarter results unveiled on April 22, the company stated that it is indeed greatly benefiting from those two trends. More specifically, Cleveland Cliffs (NYSE:CLF) CEO Celso Goncalves reported that the company had signed hefty ” fixed contract price increases that went into effect at the beginning of this calendar year 2022.”

Furthermore, on the automotive front, the steelmaker generated ” a 200,000 ton improvement [versus the previous quarter) in direct volumes to the automotive industry.” In fact, Goncalves noted that Q1 was Cleveland Cliffs’ “best shipment quarter to [the auto sector] since the semiconductor shortage began in the first quarter of last year.”

Overall, Cleveland Cliffs Q1 EBITDA, excluding certain items, soared 300% year-over-year to $1.5 billion, while its adjusted EBITDA for the 12 months that ended in March 2022 came in at $6.2 billion. The latter metric was “s a record for any 12-month period in our company’s history,” Goncalves stated.

The steelmaker will continue benefiting from the high prices that it obtained in its new contracts and from the EV revolution. Meanwhile, CLF stock is trading at a forward price-earnings ratio of just 4.7.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

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