10 Best Undervalued Basic Materials Stocks for February 2026
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Market Overview & Selection Criteria
The basic materials sector has shown resilience amid volatile commodity prices, with mining giants and chemical producers generating substantial revenue despite mixed revenue growth trends. Value Sense selected these 10 undervalued basic materials stocks based on proprietary intrinsic value calculations, quality ratings, and key metrics like ROIC, FCF margins, and 1Y returns. Stocks were prioritized where intrinsic value significantly exceeds implied market pricing, highlighting potential value opportunities in iron ore, gold, silver, steel, and fertilizers. This watchlist emphasizes diversified exposure across subsectors, using machine learning-driven analysis to identify companies with strong fundamentals trading below their estimated worth.
Featured Stock Analysis
Stock #1: Rio Tinto Group (RIO)
| Metric | Value |
|---|---|
| Market Cap | $149.2B |
| Quality Rating | 6.0 |
| Intrinsic Value | $120.4 |
| 1Y Return | 54.8% |
| Revenue | $107.9B |
| Free Cash Flow | $12.7B |
| Revenue Growth | (5.5%) |
| FCF margin | 11.8% |
| Gross margin | 27.7% |
| ROIC | 26.6% |
| Total Debt to Equity | 38.1% |
Investment Thesis
Rio Tinto Group (RIO) stands out as a premier mining leader with a market cap of $149.2B and massive scale, evidenced by $107.9B in revenue and $12.7B in free cash flow. Despite a revenue decline of 5.5%, its Quality rating of 6.0 and exceptional ROIC of 26.6% underscore efficient capital allocation in iron ore and commodities. The intrinsic value of $120.4 suggests significant undervaluation, supported by a healthy FCF margin of 11.8% and gross margin of 27.7%. With a 1Y return of 54.8%, RIO demonstrates momentum, while total debt to equity at 38.1% remains manageable, positioning it for long-term stability in the basic materials space.
This analysis reveals RIO's robust cash generation as a foundation for shareholder returns, making it a core holding in value-oriented portfolios focused on commodities.
Key Catalysts
- High ROIC 26.6% driving superior returns on invested capital
- Strong FCF $12.7B enabling dividends and buybacks
- Scale advantages with $107.9B revenue in mining operations
- Positive 1Y return 54.8% amid commodity demand
Risk Factors
- Revenue contraction -5.5% from cyclical commodity pressures
- Debt levels (38.1% debt-to-equity) sensitive to interest rates
- Exposure to global mining volatility
Stock #2: Vale S.A. (VALE)
| Metric | Value |
|---|---|
| Market Cap | $70.1B |
| Quality Rating | 5.3 |
| Intrinsic Value | $27.8 |
| 1Y Return | 77.8% |
| Revenue | $36.9B |
| Free Cash Flow | $2,883.9M |
| Revenue Growth | (9.8%) |
| FCF margin | 7.8% |
| Gross margin | 34.8% |
| ROIC | 13.0% |
| Total Debt to Equity | 43.9% |
Investment Thesis
Vale S.A. (VALE), with a $70.1B market cap, delivers solid fundamentals in iron ore production, boasting $36.9B revenue and $2,883.9M free cash flow. Its Quality rating of 5.3 pairs with an intrinsic value of $27.8, indicating undervaluation despite a revenue drop of 9.8%. Strong gross margin of 34.8%, FCF margin of 7.8%, and ROIC of 13.0% highlight operational efficiency, while a stellar 1Y return of 77.8% reflects market recognition. Total debt to equity at 43.9% is balanced by cash flows, offering exposure to Brazil's resource wealth.
VALE's metrics position it as a high-return play in basic materials, with intrinsic value tools pointing to upside potential.
Key Catalysts
- Impressive 1Y return 77.8% from iron ore strength
- Elevated gross margin 34.8% supporting profitability
- Steady ROIC 13.0% for capital efficiency
- FCF generation $2,883.9M for resilience
Risk Factors
- Revenue decline -9.8% tied to ore price swings
- Higher debt-to-equity 43.9% in emerging markets
- Geopolitical risks in Brazil operations
Stock #3: AngloGold Ashanti Limited (AU)
| Metric | Value |
|---|---|
| Market Cap | $47.8B |
| Quality Rating | 8.3 |
| Intrinsic Value | $123.6 |
| 1Y Return | 210.3% |
| Revenue | $8,575.0M |
| Free Cash Flow | $2,524.0M |
| Revenue Growth | 11.1% |
| FCF margin | 29.4% |
| Gross margin | 45.9% |
| ROIC | 26.8% |
| Total Debt to Equity | 24.2% |
Investment Thesis
AngloGold Ashanti Limited (AU) shines with a $47.8B market cap and top-tier Quality rating of 8.3, driven by $8,575.0M revenue and $2,524.0M FCF. Explosive 1Y return of 210.3% and revenue growth of 11.1% underscore gold mining momentum, with intrinsic value at $123.6 signaling deep undervaluation. Exceptional FCF margin of 29.4%, gross margin of 45.9%, and ROIC of 26.8% reflect superior margins, while low debt-to-equity of 24.2% enhances safety.
AU's profile makes it a standout in precious metals within basic materials stock picks.
Key Catalysts
- Phenomenal 1Y return 210.3% from gold prices
- Revenue growth 11.1% boosting top-line
- High FCF margin 29.4% and ROIC 26.8%
- Low debt 24.2% for financial flexibility
Risk Factors
- Gold price dependency creating volatility
- Operational risks in mining jurisdictions
- Potential margin compression if costs rise
Stock #4: Nucor Corporation (NUE)
| Metric | Value |
|---|---|
| Market Cap | $40.8B |
| Quality Rating | 6.1 |
| Intrinsic Value | $200.9 |
| 1Y Return | 38.1% |
| Revenue | $32.5B |
| Free Cash Flow | ($188.0M) |
| Revenue Growth | 5.7% |
| FCF margin | (0.6%) |
| Gross margin | 11.9% |
| ROIC | 7.4% |
| Total Debt to Equity | 32.2% |
Investment Thesis
Nucor Corporation (NUE) offers steel sector exposure at a $40.8B market cap, with $32.5B revenue and a Quality rating of 6.1. Intrinsic value of $200.9 points to undervaluation, supported by revenue growth of 5.7% and 1Y return of 38.1%. Challenges include negative FCF of $188.0M and FCF margin of 0.6%, but gross margin of 11.9% and ROIC of 7.4% show resilience. Debt-to-equity at 32.2% is moderate.
NUE provides a balanced view in cyclical steel markets for diversified watchlists.
Key Catalysts
- Revenue expansion 5.7% in steel demand
- Solid 1Y return 38.1%
- Reasonable ROIC 7.4% for industry
- Intrinsic value upside $200.9
Risk Factors
- Negative FCF -$188.0M signaling cash pressures
- Low gross margin 11.9% in competition
- Cyclical steel pricing risks
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Stock #5: Amrize Ltd (AMRZ)
| Metric | Value |
|---|---|
| Market Cap | $29.1B |
| Quality Rating | 5.4 |
| Intrinsic Value | $70.8 |
| 1Y Return | 1.2% |
| Revenue | $11.8B |
| Free Cash Flow | $1,416.0M |
| Revenue Growth | 0.5% |
| FCF margin | 12.0% |
| Gross margin | 25.8% |
| ROIC | 7.4% |
| Total Debt to Equity | 53.4% |
Investment Thesis
Amrize Ltd (AMRZ) features a $29.1B market cap and Quality rating of 5.4, with $11.8B revenue and $1,416.0M FCF. Stable revenue growth of 0.5%, FCF margin of 12.0%, and gross margin of 25.8% support operations, alongside intrinsic value of $70.8. Modest 1Y return of 1.2% and ROIC of 7.4% indicate steady performance, though debt-to-equity at 53.4% warrants monitoring.
AMRZ adds niche materials exposure to undervalued stocks portfolios.
Key Catalysts
- Positive FCF $1,416.0M and margin 12.0%
- Intrinsic value potential $70.8
- Stable revenue growth 0.5%
- Competitive gross margin 25.8%
Risk Factors
- Elevated debt-to-equity 53.4%
- Low 1Y return 1.2% lacking momentum
- ROIC 7.4% vulnerable to costs
Stock #6: Pan American Silver Corp. (PAAS)
| Metric | Value |
|---|---|
| Market Cap | $21.5B |
| Quality Rating | 7.7 |
| Intrinsic Value | $65.2 |
| 1Y Return | 127.4% |
| Revenue | $3,254.8M |
| Free Cash Flow | $752.3M |
| Revenue Growth | 21.8% |
| FCF margin | 23.1% |
| Gross margin | 31.4% |
| ROIC | 11.7% |
| Total Debt to Equity | 12.9% |
Investment Thesis
Pan American Silver Corp. (PAAS) boasts a $21.5B market cap, Quality rating of 7.7, and robust revenue growth of 21.8% to $3,254.8M. Intrinsic value of $65.2, $752.3M FCF, and 23.1% FCF margin highlight strength, with 1Y return of 127.4%. Gross margin of 31.4%, ROIC of 11.7%, and low debt-to-equity of 12.9% reinforce its appeal in silver mining.
PAAS excels as a growth-oriented pick in precious metals.
Key Catalysts
- Strong revenue growth 21.8%
- High 1Y return 127.4%
- Excellent FCF margin 23.1%
- Low debt 12.9%
Risk Factors
- Silver price fluctuations
- Mining execution risks
- Growth sustainability concerns
Stock #7: Dow Inc. (DOW)
| Metric | Value |
|---|---|
| Market Cap | $20.1B |
| Quality Rating | 5.1 |
| Intrinsic Value | $30.8 |
| 1Y Return | -27.2% |
| Revenue | $40.0B |
| Free Cash Flow | ($2,610.0M) |
| Revenue Growth | (7.0%) |
| FCF margin | (6.5%) |
| Gross margin | 6.2% |
| ROIC | (1.6%) |
| Total Debt to Equity | 10.0% |
Investment Thesis
Dow Inc. (DOW), at $20.1B market cap, has a Quality rating of 5.1 amid $40.0B revenue, but faces headwinds with revenue growth of 7.0%, negative $2,610.0M FCF, and 6.5% FCF margin. Intrinsic value of $30.8 suggests opportunity, with gross margin of 6.2% and debt-to-equity of 10.0%. 1Y return of -27.2% and ROIC of 1.6% reflect chemicals sector pressures.
DOW offers turnaround potential in basic materials analysis.
Key Catalysts
- Low debt-to-equity 10.0%
- Intrinsic value upside $30.8
- Large revenue base $40.0B
- Recovery potential in chemicals
Risk Factors
- Negative FCF and margins
- Declining revenue -7.0%
- Poor ROIC -1.6% and 1Y return
Stock #8: DuPont de Nemours, Inc. (DD)
| Metric | Value |
|---|---|
| Market Cap | $18.3B |
| Quality Rating | 5.0 |
| Intrinsic Value | $57.7 |
| 1Y Return | -42.4% |
| Revenue | $12.5B |
| Free Cash Flow | $1,186.0M |
| Revenue Growth | 2.4% |
| FCF margin | 9.5% |
| Gross margin | 38.8% |
| ROIC | (0.4%) |
| Total Debt to Equity | 38.1% |
Investment Thesis
DuPont de Nemours, Inc. (DD) holds a $18.3B market cap and Quality rating of 5.0, with $12.5B revenue, 2.4% growth, and $1,186.0M FCF. Intrinsic value of $57.7 indicates undervaluation despite 1Y return of -42.4% and ROIC of 0.4%. Positive FCF margin of 9.5%, gross margin of 38.8%, and debt-to-equity of 38.1% provide a foundation.
DD represents specialty chemicals value in the watchlist.
Key Catalysts
- Strong gross margin 38.8%
- Positive FCF $1,186.0M
- Revenue growth 2.4%
- Intrinsic value $57.7
Risk Factors
- Negative 1Y return -42.4%
- Low ROIC -0.4%
- Debt levels 38.1%
Stock #9: International Flavors & Fragrances Inc. (IFF)
| Metric | Value |
|---|---|
| Market Cap | $17.7B |
| Quality Rating | 5.5 |
| Intrinsic Value | $73.8 |
| 1Y Return | -20.4% |
| Revenue | $11.1B |
| Free Cash Flow | $654.0M |
| Revenue Growth | (3.0%) |
| FCF margin | 5.9% |
| Gross margin | 33.8% |
| ROIC | 4.8% |
| Total Debt to Equity | 46.3% |
Investment Thesis
International Flavors & Fragrances Inc. (IFF) features $17.7B market cap, Quality rating of 5.5, and $11.1B revenue. Intrinsic value of $73.8 highlights potential amid 3.0% revenue growth, $654.0M FCF, and 5.9% FCF margin. Gross margin of 33.8%, ROIC of 4.8%, but 1Y return of -20.4% and debt-to-equity of 46.3% note challenges.
IFF adds flavors/fragrances diversification.
Key Catalysts
- Solid gross margin 33.8%
- Intrinsic value opportunity $73.8
- FCF positivity $654.0M
- ROIC improvement potential 4.8%
Risk Factors
- Revenue decline -3.0%
- Negative 1Y return -20.4%
- High debt 46.3%
Stock #10: CF Industries Holdings, Inc. (CF)
| Metric | Value |
|---|---|
| Market Cap | $15.0B |
| Quality Rating | 7.3 |
| Intrinsic Value | $131.7 |
| 1Y Return | 1.7% |
| Revenue | $6,736.0M |
| Free Cash Flow | $1,712.0M |
| Revenue Growth | 12.6% |
| FCF margin | 25.4% |
| Gross margin | 39.8% |
| ROIC | 13.1% |
| Total Debt to Equity | 44.1% |
Investment Thesis
CF Industries Holdings, Inc. (CF) rounds out the list with $15.0B market cap, Quality rating of 7.3, and 12.6% revenue growth to $6,736.0M. Intrinsic value of $131.7, $1,712.0M FCF, and 25.4% FCF margin shine, alongside 39.8% gross margin and 13.1% ROIC. Modest 1Y return of 1.7% and 44.1% debt-to-equity balance the profile.
CF provides fertilizer sector strength.
Key Catalysts
- Revenue growth 12.6%
- High FCF margin 25.4% and ROIC 13.1%
- Intrinsic value $131.7
- Strong gross margin 39.8%
Risk Factors
- Low 1Y return 1.7%
- Debt-to-equity 44.1%
- Fertilizer price cycles
Portfolio Diversification Insights
These 10 best basic materials stocks create balanced exposure: mining heavyweights like RIO, VALE, and AU (40% allocation) drive commodity upside; precious metals (AU, PAAS) add 20% inflation hedge; steel/chemicals (NUE, DOW, DD, IFF) provide industrials stability 30%; fertilizers (CF, AMRZ) offer 10% agriculture play. High-ROIC leaders (AU, RIO) complement lower-return stabilizers (DOW, DD), reducing sector volatility while targeting undervaluation across subsectors for resilient portfolios.
Market Timing & Entry Strategies
Consider entry during commodity price dips or post-earnings when intrinsic values exceed prices, such as for AU's high growth or CF's margins. Scale in on 5-10% portfolio allocations, monitoring ROIC and FCF for confirmation. Use Value Sense tools for backtested screens to time against macroeconomic shifts like inflation or demand cycles.
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FAQ Section
How were these stocks selected?
These top 10 undervalued basic materials stocks were chosen using Value Sense's intrinsic value models, quality ratings above 5.0 where possible, strong ROIC/FCF metrics, and sector diversity for comprehensive screening.
What's the best stock from this list?
AngloGold Ashanti (AU) leads with the highest Quality rating 8.3, 210.3% 1Y return, and top ROIC/FCF margins, making it a standout in gold mining analysis.
Should I buy all these stocks or diversify?
Diversification across mining, metals, and chemicals (as outlined in Portfolio Insights) mitigates risks; allocate based on intrinsic value gaps rather than holding all.
What are the biggest risks with these picks?
Key risks include commodity price volatility (e.g., VALE, AU), negative FCF (NUE, DOW), revenue declines (RIO, DOW), and debt levels (AMRZ, IFF), common in cyclical basic materials.
When is the best time to invest in these stocks?
Optimal timing aligns with undervaluation signals (intrinsic value > price), commodity rebounds, or improved FCF trends; use screeners for real-time entry points.