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Quarter-End Insights

Opportunities in Basic Materials Limited to Agriculture and Chemicals

Lithium demand took a hit as a result of the pandemic, but we expect it to rebound.

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The Morningstar US Basic Materials Index outperformed the broader market during the third quarter by 330 basis points. Year to date, the sector has still underperformed the Morningstar US Market Index by roughly 240 basis points, though this is an improvement from an underperformance of roughly 520 basis points during the first half of the year. Trailing one-year underperformance improved to 380 basis points, down from 530 basis points a quarter ago. As a result of the third-quarter rally, about 30% of the U.S. basic materials stocks we cover now trade in 4- or 5-star territory. However, we think investors can still find attractive long-term opportunities in the sector, particularly in the agriculture and chemicals industries.

U.S. materials index versus the U.S. equity index. - source: Morningstar

Seth Goldstein does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.