NEW YORK (TheStreet) -- Which materials stocks are the best bets for exposure to this diverse sector?

Just two months into the year and the S&P 500 Materials Sector Index is up 5.5%, outperforming the broader S&P 500 which has barely put up a 2% gain this so far.

The materials sector spans a wide berth of companies specializing in aluminum, steel, metal and glass containers, fertilizers and agricultural chemicals, metals and mining, gold, construction materials, industrial gases, paper packaging, diversified chemicals, specialty chemicals and others.

This year, steel stocks could be a strong play as well as companies specializing in construction materials, according to Tobias Welo, portfolio manager of the Fidelity Select Materials Portfolio (FSDPX). Welo also thinks that U.S. consumer confidence levels bode well for containerboard and paper packaging products.

Additionally, the sector is seeing its share of shareholder activism that is "forcing company management teams to optimize portfolios and reduce costs, a trend that may lead to increased M&A in 2015," Welo writes in his 2015 outlook.

So which materials stocks are buys right now?

TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

TheStreet chose materials-sector stocks in the S&P 500, rated Buy, A- or better. Click through to see these must-own materials stocks. Note: Year-to-date return percentages are based on March 2, 2015 closing prices.

APD Chart APD data by YCharts

1. Air Products & Chemicals Inc. (APD - Get Report)
Sub-Industry: Industrial Gases
Market Cap: $33.6 billion
Rating: Buy, A-

YTD Return: 9.6%

Air Products and Chemicals, Inc. provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide. The company operates in Merchant Gases, Tonnage Gases, Electronics and Performance Materials, and Equipment and Energy segments.

TheStreet Ratings team rates AIR PRODUCTS & CHEMICALS INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate AIR PRODUCTS & CHEMICALS INC (APD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, increase in net income, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • APD's revenue growth has slightly outpaced the industry average of 4.7%. Since the same quarter one year prior, revenues slightly increased by 0.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 33.33% over the past year, a rise that has exceeded that of the S&P 500 Index. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • 37.70% is the gross profit margin for AIR PRODUCTS & CHEMICALS INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 12.67% is above that of the industry average.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Chemicals industry average. The net income increased by 11.9% when compared to the same quarter one year prior, going from $290.20 million to $324.60 million.
  • AIR PRODUCTS & CHEMICALS INC has improved earnings per share by 11.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AIR PRODUCTS & CHEMICALS INC reported lower earnings of $4.59 versus $4.73 in the prior year. This year, the market expects an improvement in earnings ($6.49 versus $4.59).

 

 

AVY Chart AVY data by YCharts

2. Avery Dennison Corp. (AVY - Get Report)
Market Cap: $4.9 billion
Sub-Industry: Paper Packaging
Rating: Buy, A

YTD Return: 3.9%

Avery Dennison Corporation produces and sells pressure-sensitive materials worldwide. It operates through Pressure-Sensitive Materials, and Retail Branding and Information Solutions segments.

TheStreet Ratings team rates AVERY DENNISON CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate AVERY DENNISON CORP (AVY) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, growth in earnings per share, compelling growth in net income, revenue growth and reasonable valuation levels. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • AVERY DENNISON CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, AVERY DENNISON CORP increased its bottom line by earning $2.62 versus $2.43 in the prior year. This year, the market expects an improvement in earnings ($3.30 versus $2.62).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Containers & Packaging industry. The net income increased by 66.0% when compared to the same quarter one year prior, rising from $42.70 million to $70.90 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 4.8%. Since the same quarter one year prior, revenues slightly increased by 1.3%. Growth in the company's revenue appears to have helped boost the earnings per share.

 

BMS Chart BMS data by YCharts

3. Bemis Co. (BMS)
Market Cap: $4.8 billion
Sub-Industry: Paper Packaging
Rating: Buy, A-

YTD Return: 7.9%

Bemis Company, Inc. manufactures and sells packaging products in North America, Latin America, Europe, and the Asia-Pacific. It operates through two segments, U.S. Packaging and Global Packaging.

TheStreet Ratings team rates BEMIS CO INC as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate BEMIS CO INC (BMS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 26.00% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, BMS should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • BEMIS CO INC has improved earnings per share by 16.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, BEMIS CO INC increased its bottom line by earning $2.36 versus $1.86 in the prior year. This year, the market expects an improvement in earnings ($2.60 versus $2.36).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the Containers & Packaging industry average, but is less than that of the S&P 500. The net income increased by 5.2% when compared to the same quarter one year prior, going from $56.20 million to $59.10 million.
  • The debt-to-equity ratio is somewhat low, currently at 0.94, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.27, which illustrates the ability to avoid short-term cash problems.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Containers & Packaging industry and the overall market on the basis of return on equity, BEMIS CO INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.

 

 

DD Chart DD data by YCharts

4. E. I. du Pont de Nemours and Company (DD - Get Report)
Market Cap: $70.9 billion
Sub-Industry: Diversified Chemicals
Rating: Buy, A-

YTD Return: 6.2%

  1. I. du Pont de Nemours and Company operates as a science and technology based company worldwide. The company's Agriculture segment offers corn hybrid, soybean, canola, sunflower, sorghum, inoculants, seed products, wheat, rice, herbicides, fungicides, and insecticides.

TheStreet Ratings team rates DU PONT (E I) DE NEMOURS as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate DU PONT (E I) DE NEMOURS (DD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, increase in net income, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • DU PONT (E I) DE NEMOURS reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DU PONT (E I) DE NEMOURS increased its bottom line by earning $3.89 versus $3.04 in the prior year. This year, the market expects an improvement in earnings ($4.11 versus $3.89).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Chemicals industry. The net income increased by 269.2% when compared to the same quarter one year prior, rising from $185.00 million to $683.00 million.
  • The debt-to-equity ratio is somewhat low, currently at 0.80, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.03, which illustrates the ability to avoid short-term cash problems.

 

DOW Chart DOW data by YCharts

5. Dow Chemical Co. (DOW)
Market Cap: $57 billion
Sub-Industry: Diversified Chemicals
Rating: Buy, A-

YTD Return: 8.2%

The Dow Chemical Company manufactures and supplies chemical products for use as raw materials in the manufacture of customer products and services worldwide.

TheStreet Ratings team rates DOW CHEMICAL as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate DOW CHEMICAL (DOW) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is somewhat low, currently at 0.88, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.30, which illustrates the ability to avoid short-term cash problems.
  • Net operating cash flow has increased to $2,757.00 million or 23.46% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -5.99%.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 4.7%. Since the same quarter one year prior, revenues slightly dropped by 0.0%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • DOW CHEMICAL's earnings per share declined by 20.3% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, DOW CHEMICAL reported lower earnings of $2.86 versus $3.61 in the prior year. This year, the market expects an improvement in earnings ($2.88 versus $2.86).

ECL ChartECL data by YCharts

6. Ecolab Inc. (ECL - Get Report)
Market Cap: $34.9 billion
Sub-Industry: Specialty Chemicals
Rating: Buy, A

YTD Return: 10.9%

Ecolab Inc. provides water, hygiene, and energy technologies and services for customers worldwide. The company operates in four segments: Global Industrial, Global Institutional, Global Energy, and Other.

TheStreet Ratings team rates ECOLAB INC as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate ECOLAB INC (ECL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in stock price during the past year, impressive record of earnings per share growth, compelling growth in net income and largely solid financial position with reasonable debt levels by most measures. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ECL's revenue growth has slightly outpaced the industry average of 4.7%. Since the same quarter one year prior, revenues slightly increased by 3.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • ECOLAB INC has improved earnings per share by 18.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, ECOLAB INC increased its bottom line by earning $3.93 versus $3.15 in the prior year. This year, the market expects an improvement in earnings ($4.62 versus $3.93).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Chemicals industry average. The net income increased by 16.9% when compared to the same quarter one year prior, going from $287.10 million to $335.50 million.
  • The debt-to-equity ratio is somewhat low, currently at 0.90, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that ECL's debt-to-equity ratio is low, the quick ratio, which is currently 0.65, displays a potential problem in covering short-term cash needs.

IFF ChartIFF data by YCharts

7. International Flavors & Fragrances Inc. (IFF - Get Report)
Market Cap: $34.9 billion
Sub-Industry: Specialty Chemicals
Rating: Buy, A+

YTD Return: 21.1%

International Flavors & Fragrances Inc., together with its subsidiaries, creates, manufactures, and supplies flavors and fragrances for use in various consumer products worldwide. The company operates in two segments, Flavors and Fragrances.

TheStreet Ratings team rates INTL FLAVORS & FRAGRANCES as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate INTL FLAVORS & FRAGRANCES (IFF) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • IFF's revenue growth has slightly outpaced the industry average of 4.7%. Since the same quarter one year prior, revenues slightly increased by 4.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.62, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. To add to this, IFF has a quick ratio of 1.87, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Powered by its strong earnings growth of 46.66% and other important driving factors, this stock has surged by 30.57% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, IFF should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • INTL FLAVORS & FRAGRANCES has improved earnings per share by 46.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, INTL FLAVORS & FRAGRANCES increased its bottom line by earning $5.06 versus $4.29 in the prior year. This year, the market expects an improvement in earnings ($5.51 versus $5.06).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Chemicals industry. The net income increased by 46.6% when compared to the same quarter one year prior, rising from $61.48 million to $90.14 million.

 

 

SHW Chart SHW data by YCharts

8. Sherwin-Williams Co. (SHW - Get Report)
Market Cap: $27.3 billion
Sub-Industry: Specialty Chemicals
Rating: Buy, A-

YTD Return: 10.6%

The Sherwin-Williams Company is engaged in the development, manufacture, distribution, and sale of paints, coatings, and related products to professional, industrial, commercial, and retail customers worldwide.

TheStreet Ratings team rates SHERWIN-WILLIAMS CO as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate SHERWIN-WILLIAMS CO (SHW) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, solid stock price performance, impressive record of earnings per share growth and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SHW's revenue growth has slightly outpaced the industry average of 4.7%. Since the same quarter one year prior, revenues slightly increased by 4.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 44.89% over the past year, a rise that has exceeded that of the S&P 500 Index. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • SHERWIN-WILLIAMS CO has improved earnings per share by 20.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SHERWIN-WILLIAMS CO increased its bottom line by earning $8.80 versus $7.26 in the prior year. This year, the market expects an improvement in earnings ($11.15 versus $8.80).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Chemicals industry average. The net income increased by 14.3% when compared to the same quarter one year prior, going from $116.12 million to $132.74 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Chemicals industry and the overall market, SHERWIN-WILLIAMS CO's return on equity significantly exceeds that of both the industry average and the S&P 500.

 

SIAL Chart SIAL data by YCharts

9. Sigma-Aldrich Corp. (SIAL)
Market Cap: $16.5 billion
Sub-Industry: Specialty Chemicals
Rating: Buy, A

YTD Return: 0.58%

Sigma-Aldrich Corporation, a life science and high technology company, develops, manufactures, purchases, and distributes various chemicals, biochemicals, and equipment products worldwide.

TheStreet Ratings team rates SIGMA-ALDRICH CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate SIGMA-ALDRICH CORP (SIAL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SIAL's revenue growth has slightly outpaced the industry average of 4.7%. Since the same quarter one year prior, revenues slightly increased by 3.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • SIAL's debt-to-equity ratio is very low at 0.14 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.02, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for SIGMA-ALDRICH CORP is rather high; currently it is at 56.03%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 18.86% significantly outperformed against the industry average.
  • SIGMA-ALDRICH CORP's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SIGMA-ALDRICH CORP increased its bottom line by earning $4.17 versus $4.05 in the prior year. This year, the market expects an improvement in earnings ($4.55 versus $4.17).
  • The net income growth from the same quarter one year ago has exceeded that of the Chemicals industry average, but is less than that of the S&P 500. The net income increased by 1.5% when compared to the same quarter one year prior, going from $131.00 million to $133.00 million.