The Best Basic Materials Stocks to Buy

Basic materials stocks appeal to investors for a few different reasons.

• They provide exposure to raw materials like metals, chemicals, and lumber, which are essential for various industries.
• Basic materials companies benefit from rising commodity prices, offering investors a way to capitalize on price increases in gold, copper, and oil.
• Basic materials stocks can be a hedge against inflation, as the value of natural resources tends to increase when inflation rises.

In the year to date, the Morningstar US Basic Materials Index rose 7.22%, while the Morningstar US Market Index gained 13.62%.

The 12 Best Basic Materials Stocks to Buy Now

These were the most undervalued basic materials stocks that Morningstar’s analysts cover as of Nov. 19, 2025.

1. FMC FMC
2. Celanese CE
3. Dow DOW
4. LyondellBasell Industries LYB
5. Eastman Chemical EMN
6. The Scotts Miracle Gro SMG
7. Albemarle ALB
8. James Hardie Industries JHX
9. Lithium Argentina LAR
10. International Flavors & Fragrances IFF
11. The Mosaic Company MOS
12. West Fraser WFG

To come up with our list of the best basic materials stocks to buy now, we screened for:

• Basic materials stocks that are undervalued, as measured by our price/fair value metric.
• Stocks that earn narrow or wide Morningstar Economic Moat Ratings, as well as companies that do not have a moat. We think companies with narrow economic moat ratings can fight off competitors for at least 10 years; wide-moat companies should remain competitive for 20 years or more.
• Stocks that earn a Low, Medium, High, or Very High Morningstar Uncertainty Rating, which captures the range of potential outcomes for a company’s fair value.

Here’s a little more about each of the best basic materials stocks to buy, including commentary from the Morningstar analysts who cover each company. All data is as of Nov. 19, 2025.

FMC

• Morningstar Price/Fair Value: 0.21
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow
• Industry: Agricultural Inputs

Agricultural inputs company FMC is the cheapest stock on our list of the best basic materials stocks to buy. FMC is a pure-play global crop protection company with a fairly balanced product portfolio across geographies and crop exposure. The stock is trading 79% below our fair value estimate of $60 per share.

FMC is a pure-play crop chemical producer. It is one of the five largest patented crop protection companies globally. FMC built its portfolio largely through acquisition. The firm acquired Cheminova in 2015 and DuPont’s crop chemical portfolio in 2017. At the same time, it divested its nonagriculture businesses.

FMC is balanced geographically among North America, Latin America, Asia, Europe, the Middle East, and Africa. In 2024, Latin America contributed 33% of revenue, North America was 28%, and EMEA and Asia were 20% each. FMC plans to divest its India commercial business over the next year, which will increase its geographical exposure to North and South America. The company is balanced by crop exposure, with soybeans the largest at just 20% of total revenue.

A pipeline of new premium products should allow FMC to continue producing new crop chemicals as older products roll off patent. In the near term, however, FMC’s largest products—the diamides, which generated around 35% of sales in 2024—are set to see patents expire and face increased competition from generic products in the coming years. The company has a strong pipeline of synthetic and biological products that should eventually replace lost diamide profits. FMC increased its exposure to biologicals—environmentally friendly pesticides—through the acquisition of BioPhero. Biologicals should help farmers fight resistant pests, which are increasingly rendering older crop chemicals ineffective. Additionally, biologicals will be needed as more traditional crop chemicals are banned from use by farmers, particularly in stronger regulatory markets such as Europe and Brazil.

FMC’s product portfolio currently skews toward insecticides, which generated a little over 55% of revenue in 2024. As genetically modified organism seeds, which are equipped with traits to fight insects, expand to new markets over the next decade, we see insecticide demand falling over the long term. Conversely, GMO seeds increase herbicide demand. For FMC, the majority of its new products in the pipeline are herbicides, fungicides, and biological insecticides. which should result in a more balanced portfolio over time.

Read more about FMC here.

Celanese

• Morningstar Price/Fair Value: 0.36
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow
• Industry: Chemicals

Celanese is one of the world’s largest producers of acetic acid and its downstream derivative chemicals, which are used in various end markets, including coatings and adhesives. The firm earns a narrow economic moat rating, and the shares of its stock look 64% undervalued relative to our $100 fair value estimate.

Celanese is the world’s largest producer of acetic acid and its chemical derivatives, including vinyl acetate monomer and emulsions. These products are used to produce specialty enginnered materials or sold externally. Celanese produces these commodity chemicals in its acetyl chain segment, which generates about half of companywide profits. This segment primarily serves the automotive, cigarette, coatings, building and construction, and medical end markets. Celanese’s Clear Lake, Texas, plant benefits from a cost-advantaged feedstock from low-cost US natural gas. The company has expanded its acetic acid production capacity at Clear Lake in recent years to take advantage of the low-cost US natural gas-based feedstock, while also reducing capacity in other higher-cost regions. This should support segment margins as we expect prices to remain well below natural gas prices in Europe, Asia, and Brent oil-based feedstock.

The engineered materials segment generates the other half of profits. It produces specialty polymers for a wide variety of end markets. Celanese expanded this business through acquisition. The company acquired Santoprene in late 2021 and acquired the majority of DuPont’s mobility and materials portfolio in late 2022. Both deals added complementary products to Celanese’s portfolio. As a result, the company is now one of the largest engineered materials producers globally.

The automotive industry accounts for about half of the engineered materials segment revenue and nearly half of companywide end-market exposure. Other key end markets include electronics and healthcare. Engineered materials uses commodity chemicals, such as acetic acid, methanol, and ethylene, to produce specialty polymers. Celanese should benefit from automakers lightweighting vehicles, or replacing small metal pieces with lighter plastic pieces.

Celanese should also see growth from increasing battery electric vehicle adoption, as the company will sell multiple components specific to these powertrains. The growth will be partially offset by a decline in internal combustion engine components, but we see an opportunity for Celanese to grow its automotive content per vehicle over time.

Read more about Celanese here.

Dow

• Morningstar Price/Fair Value: 0.47
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Chemicals

Next on our list of the best basic materials stocks to buy is Dow. Dow Chemical is a diversified global chemicals producer, formed in 2019 as a result of the DowDuPont merger and subsequent separations. The stock is trading at a 53% discount to our fair value estimate of $45 per share.

Dow Chemical is one of the largest chemicals producers in the world, producing key components for a broad range of industrial and consumer chemical and plastic products. The company’s history spans over 125 years and features an evolving product portfolio. In its current form, Dow is the commodity chemicals company created in 2019 from the DowDuPont merger and subsequent separations.

The majority of Dow’s production capacity resides in North America, where it benefits from low-cost natural gas-based feedstocks. This allows Dow to manufacture at a significant cost advantage to marginal cost producers that rely on higher-cost crude oil-based feedstocks to make the same products. Dow’s commodity chemicals are generally priced off of the marginal cost of production. Low natural gas prices and high oil prices have led to substantial profits for firms operating in North America, and we expect this dynamic will persist. Dow’s manufacturing footprint should skew more heavily toward North America in the future, as the company plans to close some European plants.

Over half of Dow’s customer base comprises the plastic packaging and polyurethane industries, with the other half are well diversified between several industrial and consumer end markets. The firm is especially focusing on consumer packaging, infrastructure, and automotive markets to drive revenue expansion. Dow’s strategy is to grow profits through incremental operational improvements. The company’s growth capital expenditures have been allocated toward capacity expansions and efficiency improvements that will enhance profitability over time.

Over the long run, Dow plans to widen its circularity initiatives, which aim to use plastics as feedstock for its manufacturing operations. The company is improving its recycling capabilities through partnerships with Mura Technology and Valoregen. Construction of the requisite recycling facilities will take at least 10 years, so the firm’s circularity initiatives will ramp up gradually. However, these projects will help Dow capitalize on rapidly accelerating demand for more environmentally friendly products as a result of evolving regulations and consumer preferences.

Read more about Dow here.

LyondellBasell Industries

• Morningstar Price/Fair Value: 0.48
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Specialty Chemicals

LyondellBasell is a petrochemical producer with operations in the United States, Europe, and Asia. LyondellBasell Industries is an affordable basic materials stock, trading at a 52% discount to our fair value estimate of $90 per share. The specialty chemicals company earns a narrow economic moat rating.

LyondellBasell is one of the largest petrochemical producers in the world, manufacturing ethylene, propylene, and myriad chemical derivatives, including propylene oxide. These products are the building blocks for downstream chemicals and plastics used in industrial and consumer markets alike. Roughly 70% of LyondellBasell’s ethylene and polyethylene production capacity is in North America. Its total ethylene and propylene capacity is fairly evenly split between North American and international markets.

Exposure to North America allows the firm to benefit from low-cost natural gas-based feedstocks. This allows Lyondell to manufacture at a significant cost advantage to marginal-cost producers that rely on higher-cost crude oil-based feedstocks to make the same products. Lyondell’s commodity chemicals are generally priced off the marginal cost of production. Low natural gas prices and high oil prices have led to substantial profits for firms operating in North America, and we expect this dynamic will persist. Although LyondellBasell may not enjoy the same low-cost raw feedstocks in many of its international operations, the company builds its plants to allow different feedstocks to reduce input costs. Some of its European assets can utilize several different feedstocks in production, allowing Lyondell some flexibility, yet the company will sell four European plants and close another as part of its feedstock optimization plan.

Lyondell is one of the largest producers worldwide of propylene oxide, a chemical derivative used in a range of products, including insulation and furniture cushioning. The company employs a PO production process that yields tertiary butyl alcohol as a co-product that is eventually used as an input for high-octane gasoline. PO/TBA production sits on the lowest end of the PO production cost curve, and only about 15% of global production capacity can utilize the process. In the first quarter of 2023, LyondellBasell opened a production facility that nearly doubled its PO/TBA production capacity in North America. The facility augments Lyondell’s cost advantage by utilizing low-cost feedstocks in this fairly unique production process.

Read more about LyondellBasell Industries here.

Eastman Chemical

• Morningstar Price/Fair Value: 0.57
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Specialty Chemicals

Established in 1920 to produce chemicals for Eastman Kodak, Eastman Chemical has grown into a global specialty chemical company with manufacturing sites around the world. The firm earns a narrow economic moat rating, and the shares of its stock look 43% undervalued relative to our $100 fair value estimate.

Through acquisition and internal development, Eastman Chemical owns a solid portfolio of specialty chemicals that are used in safety glass, window tinting, and specialty plastics, all of which offer a solid long-term growth profile. To expand its specialty portfolio, the firm invests roughly 4% of sales from its additives and functional products and advanced materials segments in research and development, which is in line with its specialty chemical peers. Eastman is well positioned to meet growing demand for auto window interlayers, including heads-up displays, and specialty plastics.

Eastman also holds a solid position in acetate tow, which is primarily used to make cigarette filters. The acetate tow industry has experienced falling prices due to overcapacity in China over the past several years. However, a handful of players dominate the industry, a factor that led to disciplined capacity shutdowns by all of the major companies during the industry downturn. To offset some of the decline, Eastman has been investing in capacity for other uses for its fibers, including fabrics and apparel.

Eastman uses multiple feedstocks, including natural gas, coal, wood pulp, and recycled chemicals and plastics. It plans to widen its recycled plastic feedstock capacity over time, which will replace traditional carbon-based feedstocks. The company’s long-term goal is to eventually make all its cellulosic plastics and polyesters from plastic waste. Its first plastic recycling facility started up in early 2024. We think this strategy will provide Eastman with growth as demand for products from this feedstock grows over time. Further, the company can charge a premium for its sustainable feedstock-based products, which allows it to recover the higher cost of production.

Eastman’s coatings, adhesives, specialty polymers, fluids, and inks businesses generate solid operating margins. Along with the fibers segment, these businesses provide a relatively stable earnings base to offset swings in other areas. As with other chemical companies, Eastman’s business model is subject to a high degree of operating leverage, as changes in volume tend to have an outsize impact on profits.

Read more about Eastman Chemical here.

The Scotts Miracle Gro

• Morningstar Price/Fair Value: 0.59
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Agricultural Inputs

Scotts Miracle-Gro is the largest purveyor of home lawn and gardening products in the US. The firm earns a narrow economic moat rating, and the shares of its stock look 41% undervalued relative to our $90 fair value estimate.

Scotts Miracle-Gro is the largest and most recognizable name in the US consumer lawn and gardening market. The firm sells a wide array of products used for lawncare and gardening.

The US consumer segment, which consists of lawn and gardening products, generated nearly 90% of total revenue in fiscal 2025. Scotts generates healthy margins on its products through branding, which allows it to maintain favorable product positioning and command shelf space in mass-market and home improvement retailers. Scotts has been able to charge a premium over competitors because of its strong brand equity. While actual product differentiation is limited, consumers are willing to pay up for Scotts’ products.

Future demand for gardening products will depend on growth in the housing industry. We expect housing starts to average 1.4 to 1.5 million per year over the next decade. While housing starts alone should increase demand for gardening products, we see some secular trends that will offset the growth. Living-preference shifts to smaller lots and urban centers should result in less need for gardening products. Additionally, a greater proportion of gardening products will be sold online. Currently, the vast majority of sales occur at brick-and-mortar retail. Even if Scotts increases its online sales presence, it may lose some pricing power as many products in the gardening industry shift away from brick-and-mortar retailers to online platforms, where Scotts will likely face more lower-priced competition.

The Hawthorne segment, which includes indoor gardening, hydroponics, and lighting equipment, contributed around 5% of revenue in fiscal 2025. Its long-term growth is tied to the legalization of cannabis in the US, as licensed growers use its products. Scotts is conducting a review of the business and may ultimately pursue a divestiture. The remainder of revenue comes from lawn and gardening products sold outside the US.

The majority of US consumer sales come from Home Depot and Lowe’s, which combined to account for just under half of companywide revenue in fiscal 2024. This creates customer concentration risk but this has been the case for over the past 20 years.

Read more about The Scotts Miracle Gro here.

Albemarle

• Morningstar Price/Fair Value: 0.63
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow
• Industry: Specialty Chemicals

Albemarle is one of the world’s largest lithium producers. Trading 37% below our fair value estimate, Albemarle has an economic moat rating of narrow. We think shares of this stock are worth $200 per share.

Albemarle is one of the world’s largest lithium producers, which generates the majority of total profits. It produces lithium through its own salt brine assets in Chile and the United States and two joint venture interests in Australian mines, Talison (Greenbushes) and Wodgina. The Chilean operation is among the world’s lowest-cost sources of lithium. Talison is one of the best spodumene resources in the world, which allows Albemarle to be one of the lowest-cost lithium hydroxide producers as spodumene can be converted directly into hydroxide. Wodgina is a spodumene asset that provides Albemarle with a third large resource, though it has a higher cost versus Talison. Albemarle also owns resources in the US and Argentina that are still in the early development phase, which should allow it to boost its long-term lithium volumes through the development of new projects in the coming decades.

As electric vehicle adoption increases and utility-scale batteries are built for energy storage, we expect double-digit annual growth in global lithium demand over at least the next decade. However, global lithium supply is also growing rapidly in response. Albemarle is growing its lithium volumes through the buildout of new lithium refining plants but has largely paused new expansion plans in light of cyclically low lithium prices. As prices recover, we expect Albemarle will increase its mining and refining capacity largely through brownfield expansions at existing operations.

Albemarle is the world’s second-largest producer of bromine, a chemical used primarily in flame retardants for electronics. Bromine demand should grow over the long term as increased demand for use in servers and automobile electronics is partially offset by a decline in demand from TVs, desktops, and laptops. Over the long term, we expect Albemarle to generate healthy bromine profits due to its low-cost position in the Dead Sea.

Albemarle is also a top producer of catalysts used in oil refining and petrochemical production. These chemicals are highly tailored to specific refineries. However, 51% of this business, Ketjen, will be divested in a deal that should close in 2026.

Read more about Albemarle here.

James Hardie Industries

• Morningstar Price/Fair Value: 0.64
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Wide
• Industry: Building Materials

James Hardie is a manufacturer of fiber cement-based building products, selling primarily to the residential construction industry. Trading 36% below our fair value estimate, James Hardie Industries has an economic moat rating of wide. We think shares of this stock are worth $28 per share.

James Hardie’s growth strategy includes marketing directly to homeowners, market share growth, and category expansion. We view this as rational and achievable, given past success. We estimate Hardie has about 90% market share in the fiber cement category in its main geography of North America, which contributes about 80% of group operating income. About two-thirds of North American EBIT is from repair and renovation, and the remainder is from new house construction. We view the R&R market as less cyclical, with homes needing to be re-sided approximately every 40 years. According to the US Census Bureau, about half of all houses are 40 years or older. As such, we expect a steady pipeline of homes requiring siding replacement or repairs through the next decade.

A focus on marketing directly to homeowners sees James Hardie promote demand for its fiber cement-based products emphasizing product value, durability, and design. The strategy to increase penetration and grow market share involves taking share from competing siding products seen as less durable or higher maintenance. Indeed, over the five years to 2022, the Census Bureau reports that fiber cement siding on newly built houses gained 3% market share in the US compared with vinyl (down 2%), stucco (up 2%), brick (down 2%), and wood (down 1%). Fiber cement siding was the siding of choice in 22% of all new US house completions in 2024. We estimate that James Hardie fiber cement siding is on about 8% of existing US houses.

Another growth initiative is targeted architectural products to appeal to higher-end markets, penetrate regions with different housing styles, and compete with costlier siding materials such as stucco and brick. This involves leveraging research and development into new products to better fit markets and/or improve margins. The firm’s primary R&R market is the US Northeast and Midwest, where the climate and house framing style suit traditional overlap siding, but newer products are targeted at other regions, such as a stucco-look product that competes in the predominantly stucco-clad Southwest.

Read more about James Hardie Industries here.

Lithium Argentina

• Morningstar Price/Fair Value: 0.68
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow
• Industry: Other Industrial Metals & Mining

Lithium Argentina is a pure-play lithium producer. Trading 32% below our fair value estimate, Lithium Argentina has an economic moat rating of narrow. We think shares of this stock are worth $8 per share.

Lithium Argentina is a pure-play lithium producer with two assets in Argentina. The company was created as a result of the former Lithium Americas separation, which separated the firm’s Argentina and North America businesses.

Cauchari-Olaroz is Lithium Argentina’s first project. The firm owns a 44.8% interest in the project, while Ganfeng, one of the world’s largest lithium producers, owns 46.7%. The remaining 8.5% is owned by JEMSE, an Argentine state-owned mining company. The project entered production in 2023 and is ramping up production volumes to the project’s first-phase annual capacity of 40,000 metric tons. Management is planning a second phase for an additional 40,000 metric tons of annual lithium capacity. On a cost basis, Cauchari-Olaroz should become a low-cost producer and will have a cost position slightly above other Argentine brine assets in operation, but well below hard-rock-based marginal cost producers.

Lithium Argentina and Ganfeng are also developing a second resource in Argentina. This is in the Pastos Grandes basin, where Lithium Argentina and Ganfeng will have a 33% and 67% ownership in the project, respectively. We forecast Pastos Grandes will enter production early next decade and will likely have a low-cost position relative to the global cost curve, but slightly higher than other Argentina brine projects, as early development studies indicate brine in the Pastos Grandes basin has a lower lithium concentration. In the long term, we forecast that Lithium Argentina and Ganfeng will have a combined annual production capacity of 150,000 metric tons. This will translate to 50,000 metric tons of capacity, for Lithium Argentina’s share.

As electric vehicle adoption increases, we expect double-digit annual growth for lithium demand over at least the next decade. Lithium Argentina should benefit, as there should be more than enough demand for the company’s resources to enter production and expand capacity over time.

Read more about Lithium Argentina here.

International Flavors & Fragrances

• Morningstar Price/Fair Value: 0.69
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Specialty Chemicals

International Flavors & Fragrances is the largest specialty ingredients producer globally. Trading 31% below our fair value estimate, International Flavors & Fragrances has an economic moat rating of narrow. We think shares of this stock are worth $95 per share.

International Flavors & Fragrances is a global leader in flavors, fragrances, and biosciences specialty ingredients. Its portfolio has changed in recent years with the acquisition of DuPont’s nutrition and biosciences business in 2021 and Frutarom in 2018.

IFF holds an enviable portfolio focused on value-added products used in food and beverages, fragrances, personal care, enzymes, probiotics, and pharmaceuticals. Its legacy business operated in the $20 billion-plus flavors and fragrances industry with a roughly 25% market share. Key competitors include Givaudan (25%), Firmenich (16%), and Symrise (12%). These four flavor and fragrance companies command nearly 80% of the global market. IFF’s products affect the desired taste, smell, or mouth feel based on customer specifications.

IFF has four reporting segments divided by end market. The scent segment (27% of 2024 adjusted EBITDA, excluding divestitures) comprises IFF’s legacy fragrances business. Taste (25%) holds IFF’s legacy flavors business.

Health and biosciences (26% of 2024 adjusted EBITDA excluding divestitures) is mostly the legacy Danisco industrial enzymes and cultures (probiotics) businesses. IFF has a roughly 20% share in both the enzymes and cultures markets. Food ingredients (21%) is the fourth segment. The business was acquired from DuPont, which sells commodity ingredients including plant-based proteins, texturants, and emulsifiers. IFF may look to divest this business in the future.

Proprietary formulations are critical drivers of revenue growth. For example, rather than supplying simple flavor solutions, IFF can deliver innovative solutions that influence a consumer’s experience with a food or beverage. These “fine-tuning” solutions can reduce costs for customers, allowing for the use of cheaper ingredients, extend a product’s shelf life, or add probiotic nutrition. Additionally, the company’s offerings help customers remove undesirable content (fat, sugar, and sodium) from a product without sacrificing the consumer experience.

Read more about International Flavors & Fragrances here.

The Mosaic Company

• Morningstar Price/Fair Value: 0.70
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: None
• Industry: Agricultural Inputs

Mosaic is one of the largest phosphate and potash producers in the world. This cheap stock looks 30% undervalued and has a fair value estimate of $35 per share.

Mosaic is a leading producer of potash and phosphate fertilizers. In 2024, potash generated nearly 40% of total gross profits, with phosphates a little over 35%. The balance is derived from the Brazilian fertilizer business. Mosaic’s US phosphate rock mines and Canadian potash assets provide the company with a stable input base for its products. Over the long run, Mosaic should benefit from growing global demand for fertilizer.

Mosaic is a top-five potash producer. Potash prices are typically determined by the marginal cost of production. Mosaic benefits from a cost position well below marginal cost, and we estimate the majority of its production sits on the bottom half of the global potash cost curve. However, Mosaic also has some higher-cost mines. As a result, on average, its potash costs are above its Canadian peer and Canpotex joint venture partner, Nutrien.

Mosaic is the world’s largest phosphate producer by capacity. It benefits from the vertical integration of its phosphate assets, as it mines its own phosphate rock, the key feedstock used to produce phosphate fertilizers. Being vertically integrated provides a cost advantage when rock prices are high, as nonintegrated producers must purchase phosphate rock on the open market. Further, Mosaic is semi-integrated in ammonia, a key ingredient in phosphate-based fertilizers. The company produces roughly one-third of its own ammonia and sources another third from CF Industries under a contract in which prices fluctuate based on producer economics. The final third of ammonia is purchased at market prices. This reduces Mosaic’s input cost variability versus its peers that buy all ammonia at market prices.

Nonintegrated phosphate producers—which are the marginal-cost players—generally set phosphate fertilizer prices. Mosaic has lower unit production costs than marginal-cost producers. However, over 70% of global phosphate production comes from players that control their own phosphate rock mines, so Mosaic’s vertical integration is neither unique nor cost-advantaged.

Read more about The Mosaic Company here.

West Fraser

• Morningstar Price/Fair Value: 0.73
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: None
• Industry: Lumber & Wood Production

Lumber and wood production company West Fraser rounds out our list of best basic materials stocks to buy. West Fraser Timber is a softwood lumber company that also produces wood panels and pulp products. The stock is 27% undervalued relative to our fair value estimate of $81 per share.

West Fraser Timber is one of the largest softwood lumber and oriented strand board producers in the world, with significant production capacity in Canada, the Southeastern United States, and Europe. New construction and remodeling are the main uses of softwood lumber and OSB products in North America. West Fraser is closely tied to the North American market, which accounts for roughly 85% of sales (70% US and 15% Canada). As price-takers, West Fraser and its peers see dramatic profit variations depending on the health of housing markets and overall economic conditions.

West Fraser’s lumber segment accounts for around 42% of revenue and sells a variety of construction and specialty-grade dimension lumber. West Fraser mainly sells Western spruce-pine-fir and Southern yellow pine lumber. It sells almost all of its spruce-pine-fir in the US while exporting a portion of its Southern yellow pine. In recent years, West Fraser, like its peers, has purchased lumber capacity in the Southeastern US, amplifying its exposure to US housing and diminishing its reliance on western Canadian mills, which have struggled with timber availability as a result of a reduction in the allowable annual cut in British Columbia. Availability of Canadian timber has also been affected by the mountain pine beetle and severe wildfires.

The acquisition of Norbord in 2021 significantly expanded West Fraser’s portfolio of engineered wood products (plywood, particleboard, medium-density fiberboard, and laminated veneer lumber) and made the company the largest producer of OSB. Engineered wood products in North America and Europe account for roughly 40% of West Fraser’s revenue, with OSB representing a majority of EWP sales. The firm’s pulp and paper segment mainly sells pulp that is used to manufacture tissue and kraft paper, and also produces newsprint paper. West Fraser produces pulp at mills in Canada but exports a majority of its production. This has led to volatile earnings for the segment due to rising transportation costs and supply chain congestion in recent years.

Read more about West Fraser here.

How to Find More of the Best Basic Materials Stocks to Buy

Investors who’d like to extend their search for top basic materials stocks can do the following:

• Review Morningstar’s comprehensive list of basic materials stocks to investigate further.
• Stay up to date on the basic materials sector’s performance, key earnings reports, and more with Morningstar’s basic materials sector page.
• Read Morningstar’s Guide to Stock Investing to learn how our approach to investing can inform your stock-picking process.
• Use the Morningstar Investor screener to build a shortlist of basic materials stocks to research and watch.