In general, materials stocks can be attractive for investors seeking high dividend yields and inflation protection. Many well-established materials companies generate substantial free cash flow that they return to shareholders through consistent and growing dividends. The average dividend yield for the materials sector is around 2.5%, above the 1.5% yield for the S&P 500 index.
Materials stocks also tend to perform well during periods of rising inflation. As the prices of the commodities they produce increase, materials companies can expand their profit margins and cash flows. This makes them an effective hedge against inflation pressures. During the high inflation period of the 1970s, for example, the materials sector significantly outperformed the broader market.
So here are seven of the most undervalued materials stocks for investors to consider this month.
Undervalued Materials Stocks: United States Lime & Minerals (USLM)
United States Lime & Minerals (NASDAQ:USLM) stands out for strong fundamentals and impressive past performance. It has consistently passed numerous due diligence checks.
USLM reported substantial growth in its financial performance for 2023, with a revenue increase to $281.3 million, up 19% from the previous year. Net income also surged by 64% to $74.5 million, and EPS rose to $13.10 from $8.01 in 2022. The company attributes its enhanced profit margins, which grew to 27%, primarily to higher revenue generation.
USLM’s first quarter of 2024 reported a revenue increase to $71.7 million from $66.8 million in the same quarter the previous year, indicating a strong start to the year. The company maintains a positive outlook for 2024, driven by sustained demand for lime and limestone products across various market sectors.
This then makes it one of those materials stocks to consider.
Boise Cascade Co (BCC)
Boise Cascade Co (NYSE:BCC) stands out for its solid financial performance and favorable analyst ratings. It has also demonstrated significant growth compared to its industry peers.
BCC concluded 2023 with strong financial results, reporting a fourth quarter net income of $97.5 million and an annual net income of $483.7 million. The annual revenue reached $6.8 billion, reflecting a robust performance throughout the year.
Looking ahead to 2024, BCC anticipates stable demand for its products, closely tied to trends in new residential construction and repair-and-remodeling activities. Industry forecasts suggest that U.S. housing starts in 2024 are expected to align with 2023’s levels, despite ongoing challenges like home affordability and economic uncertainty.
I believe that BCC then is undervalued relative to its revenue growth potential and also due to its expanding market presence.
Undervalued Materials Stocks: Vulcan Materials (VMC)
Vulcan Materials (NYSE:VMC) is a major producer of construction aggregates and other construction materials, noted for its operational efficiency and strong market position in the United States.
In the first quarter of 2024, VMC reported earnings that were below analyst expectations with an EPS of 80 cents, missing the consensus estimate by 11 cents, although it surpassed revenue forecasts with $1.55 billion for the quarter.
Further, VMC has outlined a robust outlook for 2024, indicating a continued focus on growth and operational efficiency. For the year, VMC projects an Adjusted EBITDA between $2.15 and $2.30 billion, with net earnings expected to range from $1.07 to $1.19 billion.
For the upcoming quarters of 2024, analyst consensus estimates suggest a progressive improvement in EPS, expecting 87 cents in Q2, increasing to $2.70 in Q3, and $2.03 in Q4. The full-year EPS consensus is pegged at $8.46.
Eagle Materials (EXP)
Eagle Materials (NYSE:EXP) manufactures and distributes cement, gypsum wallboard, recycled paperboard, and concrete and aggregates. The company has a reputation for quality products and a robust distribution network.
EXP has demonstrated a strong performance and strategic growth initiatives heading into 2024. The company recently announced plans for a new 500,000-ton slag cement facility in Texas, expected to start operations in the summer of 2024. This expansion is part of their strategy to meet the growing demand for cementitious materials in the Texas market.
Financially, Eagle Materials reported a quarterly EPS of $3.72 for Q3 2024, exceeding analyst expectations of $3.56. The company also saw a revenue of $558.83 million for the same quarter, surpassing the projected $537.23 million. Looking forward, EXP has forecasted its EPS for the upcoming quarters of 2024, with expectations of $3.88 in Q2 and $3.43 in Q3 €‹.
Undervalued Materials Stocks: Alcoa Corporation (AA)
Alcoa Corporation (NYSE:AA) is a global leader in bauxite mining and alumina refining with significant initiatives in green technologies and low-carbon alumina production €‹.
The company has announced a robust technology roadmap, which includes the ASTRAEA technology for recycling aluminum scrap to higher purity levels and the “Refinery of the Future” project aiming for zero-carbon emissions in alumina refining.
AA has set its production guidance for 2024, projecting alumina production to be between 9.8 and 10.0 million metric tons, with alumina shipments expected to range between 12.7 and 12.9 million metric tons.
Furthermore, Alcoa’s financial outlook for 2024 anticipates challenges, projecting a net loss. However, for 2025, the company is expected to see a positive turnaround with a substantial net income.
I feel that AA’s valuation has been discounted too harshly given that its fundamentals are set to increase. This then make it one of those undervalued materials stocks.
Superior Industries International (SUP)
Superior Industries International (NYSE:SUP) specializes in the design and manufacturing of aluminum wheels, benefiting from strong brand recognition in the luxury car market.
SUP has provided a comprehensive outlook for 2024 amidst various strategic adjustments and market challenges. For the full year 2024, Superior Industries projects net sales to be between $1.38 billion and $1.48 billion, with adjusted EBITDA expected to range from $155 million to $175 million.
The company anticipates some challenges in the first part of 2024, primarily due to inflation in labor and energy costs, which they plan to recover from customers. Additional costs are expected from the reorganization of various administrative and operational functions in Europe, which is projected to impact financial performance in the early part of the year.
In my opinion, these short-term headwinds are holding SUP back from being fairly valued, and it’s just a matter of time before its valuation reflects its fundamentals.
Vale S.A. (VALE)
Last on the list of undervalued materials stocks is Vale S.A. (NYSE:VALE). It’s one of the world’s largest iron ore miners, known for its cost efficiency and high-quality ore, with significant operations spanning the globe.
The company has set its production targets for 2024, indicating a focus on maintaining robust output levels across its core commodities. The company expects to produce between 310,000 to 320,000 metric tons of iron ore, 38,000 to 42,000 metric tons of pellets, 160,000 to 175,000 tons of nickel, and 320,000 to 355,000 tons of copper during the year.
Also, recent performance updates from the second quarter of 2023 highlight significant achievements, such as a 6% year-over-year increase in iron ore production and a 41% increase in copper production compared to the previous year, driven by the ramp-up of their Salobo III plant and improved operations at Sossego.
VALE is definitely on track to being an outperformer this year in my view, which then makes it one of those materials stocks to buy.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.