Is Now the Time to Buy These 6 Undervalued Materials Stocks?

After a hot start to 2021, concerns over the delta variant of COVID-19 have weighed on materials sector stocks in the past three months. In fact, over that time, the Materials Select Sector SPDR Fund XLB has a negative total return of 2.8% compared to a positive total return of 7.2% for the SPDR S&P 500 ETF Trust SPY.

Assuming the economic reopening will once again get back on track at some point, there could be some attractive value opportunities within the materials sector to buy on the dip. Here are the six S&P 500 materials sector stocks with the lowest forward earnings multiples, according to Finviz.

LyondellBasell Industries NV LYB
LyondellBasell is a major U.S. producer of petrochemicals, including Olefins & Polyolefins. LyondellBasell’s costs are linked to natural gas prices, and its selling prices are correlated to oil prices.

The stock’s total return in 2021 is just 9.2%, lagging both the S&P 500 and the materials sector as a whole. Its forward earnings multiple is just 6.5, lowest in the entire S&P 500 materials sector. Analysts have high hopes for a rebound in the next 12 months. The average price target among the 22 analysts covering LyondellBasell is $118, suggesting 18.1% upside from current levels.

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Mosaic Co MOS
Mosaic produces and distributes crop nutrients, including phosphates and potash. Mosaic has actually bucked the trend in the materials sector this year and has generated a total return of 34% year-to-date.

Even after its strong performance, the stock still has one of the lowest forward earnings multiples in the sector at just 7.8. Looking ahead, analysts are expecting even more upside for Mosaic in the next 12 months. The average price target among the 19 analysts covering the stock is $39, suggesting 23.8% upside from current levels.

Freeport-McMoRan Inc FCX
Freeport-McMoRan is the world’s largest public copper producer. Like Mosaic, a strong copper market has helped Freeport generate an impressive 26.5% total return year-to-date. However, the stock’s 9.1 forward earnings multiple suggests there is still plenty of potential valuation upside for investors.

Analysts covering the stock certainly seem optimistic the rally can continue. The average price target among the 15 analysts covering Freeport is $44, suggesting 28.8% upside from current levels.

Dow Inc DOW
Dow is a global chemical company that has lagged its materials peers and the S&P 500 so far in 2021, generating a 12% total return year-to-date. Value investors may like the stock’s forward earnings multiple of 10 and its attractive 4.5% dividend. The 20 analysts covering the stock have an average price target of $68.5, suggesting 10% upside for Down over the next 12 months.

CF Industries Holdings, Inc. CF
CF Industries is another materials sector stock with significant exposure to the agricultural industries. The company is the largest North American producer of nitrogen fertilizers.

CF shares have generated a total return of around 17% this year-roughly in line with the materials sector as a whole. The stock’s forward earnings multiple of just 10.1 might make the stock an attractive buy for value investors. The 17 analysts covering CF have an average price target of $60, suggesting 33.4% upside over the next 12 months.

Nucor Corporation NUE
Supply shortages have sent steel prices soaring in 2021, and steel producer Nucor has been along for the ride. Nucor shares have generated a total return of 120.9% year-to-date leaving all the other materials stocks mentioned in the dust. Still, analysts are expecting big earnings numbers to continue for Nucor in coming quarters, and its forward earnings multiple remains just 10.6.

The nine analysts covering Nucor are expecting some consolidation following the big move. Their average price target is just $110, suggesting 9% downside from current levels.