While the COVID-19 pandemic-led slowdown in the end markets has caused some damage to the basic materials sector, many companies are starting to recover with the reopening 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. Both stocks have the potential for becoming large-cap stocks very soon. Let’s discuss these names.
The challenges faced by the basic material industry were due to the restrictions that hampered the activities of those industries who use their products. Many companies operating in this sector are now recovering thanks to the solid progress made on the vaccine front. In the third quarter 2021, basic materials saw a 24.4% increase in year-over-year sales.

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. Many mid-cap stocks may soon become large-caps due to the strong start of the third quarter earnings season, and subsequent market rally.

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. It might be a good idea to place a bet now.

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