A handful of FTSE 100 shares stand out to me as some of the best stocks to buy now. These companies are all in the materials sector, which I think will experience explosive growth over the next few years. There are a couple of reasons why I hold this view.
First of all, as the global economy starts to rebuild after the pandemic, the demand for commodities such as iron ore and copper is exploding. For example, the price of iron ore recently jumped to an all-time high of more than $200 a tonne. And as the world continues to rebuild, I think demand for these commodities will remain elevated.
Secondly, governments and companies will spend hundreds of billions of pounds developing renewable energy infrastructures over the next few years. This suggests the world will need more copper. Some analysts have forecast that its price will need to rise by more than 30% to justify the investment required to meet that higher demand.
The third reason why I’d buy the three FTSE 100 stocks outlined below is that the materials industry is facing increasing pressure to improve its environmental footprint. Big firms have the edge here because they can afford to spend more to do so. Smaller companies can’t.
FTSE 100 investments
All offer something different. Glenore is the world’s largest commodity trader, which means it has its finger on the pulse of the global commodity market. It’s also a large copper miner. So its trading operation provides some insulation against volatile commodity prices, which means the company has the edge over other mining groups.
Meanwhile, Fresnillo holds one of the largest precious metals land reserves in Mexico. It specialises in gold and silver mining.
Many might not think of investing in precious metals to benefit from an economic recovery. However, rising demand from the manufacturing sector has helped power a near-75% increase in silver prices over the past 12 months. The company’s specialisation gives it an edge over other mining groups.
Finally, BHP is the world’s largest diversified mining group. It produces iron ore, coal and copper. These are three industrial resources which are seeing rising demand due to economic growth. And, like the two organisations outlined above, the company also has a solid competitive advantage. That’s its size.
Risks and challenges
That said, while these companies do offer some attractive qualities, I’m well aware that the commodities market can be incredibly volatile. That’s why I’d buy all three FTSE 100 businesses in a portfolio. I think diversification could reduce volatility and the impact a sudden fall in the price of one commodity could have on the rest of the portfolio.
I am also a bit wary of the environmental risks of owning these stocks. The mining industry has a terrible eco record, and while these companies are trying to change, change takes time. Therefore, they may not be suitable for all investors.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.