Although the basic materials sector suffered significantly due to COVID-19- pandemic-led sluggishness in end markets, companies in this space are recovering with the reopening of industries. And given the market’s current uptrend, we believe betting on mid-cap basic materials stocks Reliance Steel & (RS) and Ternium (TX) could be rewarding. They both have the potential to become large-cap stocks soon. Let’s discuss these names.
The basic material sector faced challenges amid the pandemic, with restrictions hampering the operations of industries that use its products. However, several companies in this space are recovering with the reopening of industries this year, thanks to solid progress on the vaccination front. The basic material sector experienced 24.4% year-over-year growth in the third quarter of 2021.
The S&P Midcap 400 index has gained 41.2% over the past year, outperforming the 34.2% returns delivered by the benchmark S&P 500 index, which represents large-cap stocks. Given the impressive start to the third-quarter earnings season and the consequent market rally, several mid-cap stocks could become large caps in the near term.
We think fundamentally sound mid-cap basic materials stocks Reliance Steel & Aluminum Co. (RS) and Ternium S.A. (TX), which currently possess market capitalizations of more than $8 billion, have the potential to become large-cap stocks soon. So, it could be wise to bet on them now.
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