As an investor goes about the process of investigating the basic materials sector they should be aware that there are many forms of basic materials. Gold, silver and oil are only the most recognizable of these materials. There are many materials that one may never have even thought of as an investment opportunity. Among these opportunities are a steel additive called molybdenum, lumber, and materials used in concrete. The general concept is to consider the wide range of basic materials and how they are used within the world economy.
There is quite a bit of information regarding a little known basic material called molybdenum. This material might be characterized as looking like ash but serves a very specific purpose in its ability to harden steel. Margins on the sale of the product are not generally high but volume speaks loudly as a slower world economy begins to rebound and China announces certain export restrictions of the product so it can use its own domestic sources for infrastructure projects.
Continuing within the construction category one should consider steel and associated products designed for the “infrastructure play.” This particular category contains a very large grouping of basic materials. Timing for investment may have been six months ago for several of these investments but it does appear that there may still be an opportunity for many if one considers where the highs of these stocks were before the downturn.
AK Steel (AKS) may well be the choice of the moment while US Steel (X) has been making a run of late. US Steel was priced at under $20 recently but has now climbed to over $63. As this may seem to be outside of a small cap investor’s price range, the consideration is that it is rising after falling from well over $200. If steel is a consideration, AK Steel (AKS) may be a slightly better priced option. Running in the $24 range, this company, which might be considered more of a mini-mill steel company, is widely considered to be one of the more efficiently run companies within the US.
If a more value oriented small cap company in this category is of interest, one might consider US Concrete (RMIX). This company manufactures ready mix and pre-cast concrete within some of the largest markets of the US. At just over a dollar per share, the company is well positioned at a rock bottom price. Although many states are strapped for tax revenue of late, there is evidence to support that these same states are going to need to do something about their road systems sooner rather than later.
Basic materials are just that, basic. With patience and a committed time horizon, profit can be made. These choices may move up and down in an uncertain economic world but staying with them is a good way to potentially see solid gains.
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