The Canadian materials sector has provided essential raw material inputs for industrial growth and economic development for decades, recovering from recessions while generating immense riches for materials stock investors in the process. Select materials including steel and lithium remain in high demand in 2023 in North America. Russel Metals (TSX: RUS) stock and Lithium Americas (TSX: LAC) stock should be among your best materials stocks to buy this earnings season. Here’s why.
Russel Metals
Russel Metals is a leading supplier of steel products in North America and one of the best Canadian materials stocks to buy as steel prices remain firm while America rebuilds its infrastructure in 2023. Shares are up 26% so far this year, and more capital gains could be ahead given its current upside momentum.
The United States is rebuilding its infrastructure, and key construction materials are increasingly in high demand, and the local market can’t cope. Besides a widely reported cement shortage, the United States’ demand for steel is sky-high this year. Monthly imports soared 18% sequentially in January 2023 and were up 14.1% month-on-month in March.
In its most recent earnings report on May 8, the company mentioned an “improvement in industrial-based demand” from the “manufacturing, fabrication, agriculture, shipbuilding, non-residential construction, energy, and alternative energy” industries. Most noteworthy, management revealed that “the favourable demand trends and steel price increases that were experienced late in the 2023 first quarter are being maintained into the 2023 second quarter.”
Russel Metals stock is trading near its 52-Week high after a strong 26% year-to-date gain. The company is repurchasing its shares and it recently raised its quarterly dividend by 5.2% for June 2023. The Russel Metals stock dividend yields 4.5%. Stable cash flows cover the payout very well. The company has historically paid out just 42% of its earnings over the past five years. The dividend looks safe to buy for income-oriented dividend investors.
Lithium Americas stock
Most every investor has come to appreciate growing global production of battery-powered electric vehicles (EVs) as a leading cause of an expected demand surge in battery metals, key among them being relatively price-inelastic lithium. Although lithium prices are far off the record highs seen in 2022, lithium demand will only grow from current levels as European and North American government bans on “dirty” petrol and diesel-fueled vehicles come into effect later this decade. Lithium Americas stock could benefit.
Lithium Americas is one of the few pure-play Canadian lithium stocks that could break into revenue generation in 2023. The company has found a new deep-pocketed strategic investor (a US$650 million investment from General Motors (GM)) for its Nevada project, and its Thacker Pass project could break new ground in the United States in a few months.
Although Lithium Americas stock may split into two separate entities, both entities are worthy to hold. Investors will own a stake in a de-risked, revenue-generating lithium miner. They will gain access to a U.S. lithium development project that has a strategic buyer in place. The U.S. project should benefit from geopolitical developments as the United States strives for battery industry self-sufficiency as it weans itself from China-dependent supply chains. Both entities could do well. And both individual lithium stocks could generate substantial capital gains over the remainder of this decade.
LAC stock has gained more than 13% during the past month.
