Photo credit: Walter Energy 

There is a case to be made for investing in material stocks like Alcoa (NYSE:AA), Walter Energy (NASDAQOTH:WLTGQ), or Cliffs Natural Resources (NYSE:CLF). All three companies have been battered by the financial crisis, but a slowly growing economy could be just what these companies need to thrive in the future. That being said, there's way too much risk involved with all three, which is why you don't want to use these material stocks as building blocks for your portfolio.

I've created the following slideshow to show both the risks and rewards of investing in these material stocks. For example, while Alcoa is benefiting from the rise of aluminum in vehicles, it is still way too exposed to the commodity price of aluminum. Meanwhile, iron ore producer Cliffs Natural Resources and coal miner Walter Energy aren't in the best financial shape, which just isn't the best building block for your retirement.

Instead of owning these material stocks like Alcoa, Cliffs Natural Resources or Walter Energy investors should stick with safer companies that aren't as exposed to commodity pricing pressure. That's why I'll detail one sector that investors should consider instead as strong contracted cash flow and visible growth potential make it a much better building block for a retirement portfolio.


Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.