Materials Industry Research & Analysis
Materials Industry Research Report
Material Industry Profile _ (edit/improve) Any company that makes its money through the mining and selling of physical materials of the earth is in the materials sector. Given that most everything on the planet is made from some kind of material, this sector is very vast. It is helpful for the individual to refer to a particular material when they are referring a particular company. Sometimes this is not possible, because one company might operate in more than one material. Based on this complexity, any company making money this way has been deemed a materials stock. The materials sector is probably more vast than any other sector. It is difficult to define what one might expect in the typical stock in this sector. There really is no typical stock in this sector. The investor is best off giving the sector a detailed look before making the decision to invest.
Material Industry Research & Analysis: The materials industry includes companies whose sales originate from the mining, acquisition and sale of physical substances for manufacturing-related purposes. Material Trading Strategy: The materials industry tends to be sensitive to economic cycles. Look for undervalued material investments during economic recessions when stock prices are low and sell material investments during the late stages of a bull markets when stock prices are high. Material stocks quickly increase at the conclusion of a recession, because materials are the primary input for the industrial sector. The global economy is currently in a recession, therefore, it is the perfect time to purchase material investments. Upward sloping stock charts and financial news may indicate a selling opportunity while the opposite means that stocks are becoming undervalued.
Industry Analysis evaluates the major industry characteristics that affect investments. Company specific factors drive the performance of individual companies, but macro-economic factors can affect the performance, stock prices, growth rates, and chart movements of any stock, currency, or commodity. Review industry research before trading.
Warren Buffett Quote: "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." No matter the quality of your business, industry economics is an important factor in any value investing decision.
|Stock Research Rating||Hold||…|
|Potential (safety margin)||18%||…|
|WACC Discount Rate||9%||…|
|Revenue EV Multiple||1.1x||…|
|EBITDA EV Multiple||3.9x||Low ~ Good for investors|
|EBIT EV Multiple||6.1x||Low ~ Good for investors|
|Cash Flow EV Multiple||9.0x||Low ~ Good for investors|
|Book Value EV Multiple||1.2x||…|
|Discounted Cash Flow (DCF)||Ratios||Notes|
|EBITDA Margin||18%||High ~ Good for investors|
|Cash Flow Margin||8%||…|
|Debt-Equity Ratio||26%||Low ~ Good for Investors|
|WACC Discount Rate||Rates||Notes|
|Risk Free Rate||4%||Low ~ Good for Investors|
|Cost of Debt||7%||Low ~ Good for Investors|
|Equity Risk Premium||5%||…|
|Debt Required Return of Debt||5%||Low ~ Good for Investors|
|Required Return of Equity||11%||…|
1 WikiWealth only uses the largest 30 companies in each industry for the basis of these financial measures. Each statistic is the market weighted average of the 30 companies.
2 Investment potential (margin of safety) is a weighted average of the discounted cash flow (DCF), the enterprise value (EV) market multiple, and the Warren Buffett investment methods.
Description: The materials industry includes companies whose sales originate from the mining, acquisition and sale of physical substances for manufacturing-related purposes (see full material description: competitors, industry ratios, best stocks, market leaders, aggregate SWOT Analysis, and streaming industry news).
Profit Analysis: The best way to profit from material stock is to find the most undervalued investments (Wall Street and Main Street buy ratings) during economic recessions. Those investments should be undervalued (see Wall Street on left side), and have high Main Street Common Sense investment ratings (see Main Street on right side). When an economic recovery occurs, material stocks tend to outperform the general stock market, because consumers and businesses must increase their inventories quickly to meet demand for manufactured goods. Consumers and business delayed purchases on items they wanted, but resisted buying during tougher economic times. Eventually, material company investments become overvalued, because profits and stock prices increase past their fair values. During the last stages of an economic business cycle, just before a recession, it is best to sell material stocks, because they are likely to decrease in price the fastest. Expensive (overvalued) stocks with low Main Street Common Sense ratings should be sold at any time to invest in better stocks. Two buys ratings are the best and two sell ratings are the worst possible stock investments.
Inflation Hedge: Changes in commodity prices affect material stocks. When commodity prices are high due to increased demand or lower supply, material stocks increase, because demand for their goods also increases. Inflation occurs when the price of goods and services increases. The price of materials are generally the first inputs into the production of goods, so changes in material prices directly affect the cost of products, which is measured by inflation. Therefore, a good hedge against inflation is to own material stock investments. When inflation increases, so do the profits of material companies, which may have directly contributed to the increase in prices.
Trading Strategy: During economic recessions, consumers tend to cut back on spending to save money. Businesses tend to cut back on investments. Industrial companies make the products bought by consumers and businesses, but to make those products, industrial companies must obtain materials. Less spending on goods decreases material business revenue and eventually decreases stock prices. During economic recoveries, consumers and businesses spend quickly to replace or catch up with quickly increasing demand. Material companies quickly receive orders from industrial companies who need to manufacture new products to meet quickly increasing demand. Higher spending increases material business revenue and eventually increases stock prices. During a longer economic expansion, consumer and business demand increases for material companies, but at a slower pace than during the recovery stage.