Finder makes money from featured partners, but editorial opinions are our own. Advertiser Disclosure

Investing in materials stocks

Investments that can thrive in a strong economy, but are risky in an economic downturn.

Many materials stocks offer dividends and can help diversify your investment portfolio. But as with any investment, knowing what to look out for could help mitigate losses.

What are materials stocks?

Materials stocks make up the materials sector — one of the 11 major sectors of the stock market. These companies find, develop and process raw materials such as oil, timber and metal. Since most of these materials are used in construction and packaging, any changes in the business cycle and economy can affect their performance.

What industries does it include?

The materials sector includes companies that make basic materials that we use in everyday items. The five major industries include:

  • Chemicals. Those that convert raw materials to industrial chemicals, such as plastic.
  • Construction. This industry comprises companies that deal primarily with the construction of buildings, roads and bridges.
  • Containers and packaging. These professionals tackle the design and manufacture of various types of packaging, like aluminum food containers, paint cans and cardboard boxes.
  • Paper and forest products. This industry is dedicated to growing and harvesting lumber, timber and paper.
  • Metals and mining. These companies are responsible for locating and extracting metals and minerals like aluminum, gold and silver.

How to invest in the materials sector

When investing in the materials sector, you have two options: exchange-traded funds (ETFs) or individual stocks. ETFs track the sector and hold a basket of materials stocks, which lowers your exposure to risk by diversifying your portfolio. But they usually come with higher fees and pay lower dividends. Owning shares of individual stocks can offer higher payouts, but can be riskier.
Here’s a snapshot of how to invest in stocks and ETFs:

  1. Choose a brokerage. Compare brokerage platforms to select a firm that matches your financial goals.
  2. Open an account. Most brokerage accounts offer online accounts. While some don’t require a deposit to open, you’ll need to fund your account before you can purchase any investments.
  3. Select your securities. Use your platform’s resources and research tools to read up on stocks and ETFs.
  4. Make a purchase. Place an order on a security you’d like to invest in.
  5. Track your investments. Log into your brokerage account to monitor your stocks or ETFs.

What stocks are in the materials sector?

See how the following stocks are performing, and view details like market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield.

What ETFs track the materials sector?

Several popular ETFs that follow the materials sector include:

  • Fidelity MSCI Materials ETF (FMAT)
  • First Trust Materials AlphaDEX Fund (FXZ)
  • Invesco S&P 500 Equal Weight Materials ETF (RTM)
  • Materials Select Sector SPDR ETF (XLB)
  • SPDR Metals and Mining ETF (XME)
  • Vanguard Materials Index Fund (VAW)

How is the materials sector performing?

The stock market is in constant flux, and individual stocks can change prices quickly. But you can use the performance of ETFs to gauge the average performance of a sector over time. The graph below tracks the Materials Select Sector SPDR ETF (XLB), which can be used to track the performance of materials stocks.

Why invest in the materials sector?

Materials stocks provide the raw materials necessary to produce goods and services. These are popular investments because these companies tend to thrive in a strong economy.
Many materials stocks also generate regular cash flow and return cash to shareholders through consistent dividends. While the S&P 500 index dividend yield is 1.96% as of June 22, 2020, the SPDR S&P Metals and Mining ETF dividend yield is 3.03%. And a few individual stocks are boasting dividend yields closer to 6%.

What unique risks does the materials sector face?

The materials sector is especially vulnerable to the global economy, international politics and fluctuating demand. For example, materials stocks can get caught in the crosshairs of geopolitical tensions and trade wars. Tariffs can lead to higher prices, which can delay or deter sales.
Materials stocks can also plunge when there is low demand, especially during economic recessions.

Compare stock trading platforms

If you’re planning on buying stocks or ETFs, you’ll need a brokerage account. Compare your options to find the best fit.

1 - 6 of 6
Name Product Available asset types Stock trade fee Minimum deposit Signup bonus
SoFi Invest
Stocks, Options, ETFs, Cryptocurrency
$0
$0
Get up to $1,000
when you fund a new account within 30 days.
Winner of Finder’s Best Low-Cost Broker award.
Finder Award
eToro
Stocks, Options, ETFs, Cryptocurrency
$0
$10
FINDER EXCLUSIVE: Get $15
when you sign up and deposit $100
Winner of Finder’s Best Broker for Beginners award. Not available in NY, NV, MN, TN, and HI.
Robinhood
Stocks, Options, ETFs, Cryptocurrency
$0
$0
Get a free stock
when you successfully sign up and link your bank account.
Make unlimited commission-free trades, plus earn 4% interest on uninvested cash in your account with Robinhood Gold.
tastyworks
Stocks, Options, ETFs, Cryptocurrency
$0
$0
Get $200 in US stocks
when you open and fund an account with min. $2,000 for 3+ mos.
Highly commended for Best Derivatives Trading Platform award.
Public.com
Stocks, ETFs, Cryptocurrency, Alternatives
$0
$0
Get up to $300 in either stocks or crypto
when you use code FINDERUS to sign up and fund a new account.
Trade stocks and ETFs commission-free, plus gain access to alternative investments like art, NFTs and more.
Interactive Brokers
Stocks, Bonds, Options, Mutual funds, ETFs, Cryptocurrency, Futures, Forex
$0
$0
N/A
Winner of Finder’s Best Overall Stock Broker award.
loading

Compare up to 4 providers

Bottom line

The materials sector may be a good option if you’re looking for cash dividends and the potential for profit in a flourishing economy. But it comes with unique risks because of its sensitivity to the global economy, trade and politics.
Be sure to explore your online trading platform options to pick a brokerage account that best fits your investment portfolio.

Frequently asked questions

Information on this page is for educational purposes only. Finder is not an advisor or brokerage service, and we don't recommend investors to trade specific stocks or other investments.

Finder is not a client of any featured partner. We may be paid a fee for referring prospective clients to a partner, though it is not a recommendation to invest in any one partner.

More guides on Finder

Ask an Expert

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and finder.com Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site