Inflation soared to 9.1% in June, marking its fastest annual rate since November 1981. According to CME Group, traders have now assigned an 83% probability that the Fed will hike rates by a full point later this month. Consequently, recession fears are rife as consumer sentiment keeps deteriorating.
However, despite rising prices, demand for the basic materials industry remained robust as construction activities resumed. Moreover, generous administrative investments are driving further growth.
The infrastructure bill boosted the domestic construction and the basic materials industries. Also, the Biden administration recently announced $200 billion for global infrastructure projects, aiming to counter similar efforts by China.
U.S. President, Joe Biden, said, “It’s an investment that will deliver returns for everyone, including the American people, the people of all our nations. It will boost all of our economies, and give a chance for us to share our positive vision for the future.”
Thus, we think, basic materials stocks BHP Group Limited (BHP) and Sociedad Química y Minera de Chile S.A. (SQM) are well-positioned to survive a recession. These stocks are rated Buy in our proprietary POWR Ratings system.
BHP Group Limited (BHP)
Headquartered in Melbourne, Australia, BHP operates as a resources company in Australia, Europe, China, Japan, India, South Korea, the rest of Asia, North America, South America, and internationally. It operates through Petroleum; Copper; Iron Ore; and Coal segments.
On February 15, 2022, BHP’s CEO, Mike Henry, said, “We announced and advanced the proposed merger of our petroleum business with Woodside, we progressed our divestments of certain coal assets and we announced the final investment decision for our Jansen Stage 1 potash project. BHP is well positioned for the future.”
For the half year ended December 31, 2021, BHP’s attributable profit increased 143.6% year-over-year to $9.44 billion. Its EPS came in at 186.60 cents, up 143.6% year-over-year. Moreover, its underlying EBITDA came in at $18.46 billion, up 33% year-over-year.
Analysts expect BHP’s revenue to be $66.84 billion in June 2022, representing a 9.9% year-over-year increase. The company’s EPS is expected to grow 3% year-over-year to $6.96 for the same period. BHP has lost 12.3% over the past month to close the last trading session at $50.67.
BHP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BHP has a B grade for Quality. It is ranked #3 out of 36 stocks in the Industrial – Metals industry. Click here for the additional POWR Ratings for BHP (Growth, Value, Momentum, Stability, and Sentiment).
Sociedad Química y Minera de Chile S.A. (SQM)
Chile-based company SQM produces and distributes specialty plant nutrients, iodine and its derivatives, lithium and its derivatives, potassium chloride and sulfate, industrial chemicals, and other products and services.
On May 18, 2022, SQM’s CEO, Ricardo Ramos, said, “Our first quarter results reflect several positive circumstances; first, the impact of higher prices in all our business lines, where significant increases in lithium prices stand out, and second, the successful long-term, operational and commercial strategy.”
He added, “Today we can proudly report that we are a leader in the lithium industry. SQM’s lithium business is a very good example of a successful public-private partnership.”
SQM’s revenues increased 282.2% year-over-year to $2.02 billion for the first quarter ended March 30, 2022. Its net income came in at $796.10 million, up 1,070.7% year-over-year, while its EPS came in at $2.79, up 973.1% year-over-year.
SQM’s revenue is expected to grow 194.3% year-over-year to $8.42 billion in 2022. Its EPS is expected to grow 40.6% per annum for the next five years. In addition, it surpassed EPS estimates in each of the trailing quarters. The stock has gained 80.9% over the past year to close the last trading session at $85.85.
SQM has an overall B rating, which translates to a Buy in our proprietary rating system. It has an A grade for Growth and a B for Sentiment and Quality.
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BHP shares were trading at $50.93 per share on Tuesday afternoon, up $0.26 (+0.51%). Year-to-date, BHP has declined -1.05%, versus a -17.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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