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The materials sector produces many of the building blocks needed to make the things we use every day. That makes it an important industry for investors to know about.
Demand for materials is cyclical, making the sector's participants highly susceptible to changes in the economy. If economic conditions weaken, demand for basic materials tends to decline, lowering prices and affecting profitability for materials producers.
The economic cycle, however, is only one of many factors that can affect the materials sector. Supply chain issues, legislation, and inflation are just some of the other factors that can affect demand, prices, and industry profitability for the materials sector.
Rio Tinto is one of the world's leading mining companies. The London-based company produces the three top industrial metals -- iron ore, aluminum, and copper -- and several other important metals and minerals, including lithium.
Rio Tinto focuses on these industrial metals because they are the ones the global economy most commonly consumes. The uses for iron ore, aluminum, and copper are numerous and growing:
Although these metals are highly sensitive to cyclical changes in the global economy, demand for the metals Rio Tinto produces should continue to grow.
Rio Tinto is also becoming a global leader in supplying energy transition metals. It bought lithium producer Arcadium Lithium for $6.7 billion in 2025 to become a major lithium producer. Rio Tinto also agreed to invest $2.5 billion in late 2024 to expand its Rincon project in Argentina, where it's building its first commercial-scale lithium operation.
The company also boasts a strong balance sheet and some of the lowest-cost operations in the world. It has the financial flexibility to expand its operations while returning cash to investors via share repurchases and dividend payments. As a result, Rio Tinto is well-positioned to cope with changes in demand for these commodities and create value for its shareholders.
Nucor is the largest and most diversified steel and steel products company in North America. It’s also the continent’s largest steel recycler.
The company’s focus on steel positions it for two megatrends. First, steel is essential for making wind turbines, so it’s vital to the renewable energy industry. Steel is also crucial for infrastructure, such as bridges and railways, making it a beneficiary of increased infrastructure spending in the U.S.
Nucor has a low and highly variable cost structure. Because of that, it has a long history of generating free cash flow throughout the cycle. The steelmaker has maintained a strong balance sheet, and it is now a Dividend King after 50+ years of growing their dividend payments.
Air Products & Chemicals is one of the world’s leading industrial gas companies. It supplies essential industrial gases to the refining, chemical, metals, electronics, manufacturing, and food and beverage industries. It’s also a leading global supplier of liquefied natural gas (LNG) process technology and equipment.
The company is a major supplier of hydrogen, which could play an important role in fueling the economy in the future. In addition, its expertise in carbon capture and storage could help reduce greenhouse gas emissions. Add that to its importance to the growth of LNG, a widely used fuel, and Air Products is playing a vital role in helping the global economy transition to cleaner energy sources.
Air Products also boasts a strong financial profile, including an excellent balance sheet and healthy cash flow. That gives it the financial flexibility to expand its operations and pay a growing dividend.
Eagle Materials is a leading U.S. building materials producer. It manufactures heavy materials (cement, concrete, and aggregates) and light materials (gypsum wallboard and recycled paperboard). These materials are crucial to the construction industry.
Eagle Materials strategically focuses on operating heavy materials manufacturing capacity in the U.S. heartland, limiting the impact of competition from imports. Meanwhile, it concentrates its light materials manufacturing capacity in the southern portion of the country, where home construction is rising. These features enable it to benefit from higher prices and make more money on the materials it produces.
Eagle Materials produces a lot of cash, giving it the funds to expand its operations and return capital to shareholders through dividends and share repurchases. It has expanded its heavy materials operations by acquiring Bullskin Stone & Lime, a pure-play aggregates asset in Pennsylvania, for $152.5 million in late 2024. Meanwhile, it announced plans to spend $330 million to modernize and expand its gypsum wallboard plant in Oklahoma in mid-2025. Those investments will help increase its earnings and shareholder value.
Investors buy basic materials stocks for several reasons, including:
While all companies in the basic materials sector face risks related to the health of the economy, the best materials companies are well-positioned financially and benefit from a diversified portfolio of operations. The top materials companies have multiple businesses, investment-grade bond ratings, manageable debt, and low production costs. These factors enable them to still make money even when materials prices decline.
Materials companies are more likely to perform well when the economy is booming, making these companies a better buy in bull markets. But, even when the economy is growing, fierce competition in the materials sector tends to restrict companies' abilities to generate substantial profit, which affects share prices.
Investors need to be very picky when choosing materials stocks. They need to focus their attention on well-run, financially strong companies with visible growth prospects. A sharp focus increases the probability that materials stocks can deliver attractive returns for investors.
Although many companies operate in the materials industry, the following four stand out as some of the top materials stocks for investors to consider:
| Name and ticker | Market cap | Industry |
|---|---|---|
| Rio Tinto Group (NYSE:RIO) | $77.9 billion | Metals and Mining |
| Eagle Materials (NYSE:EXP) | $7.6 billion | Construction Materials |
| Air Products And Chemicals (NYSE:APD) | $65.6 billion | Chemicals |
| Nucor (NYSE:NUE) | $34.5 billion | Metals and Mining |
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