The basic materials sector produces many of the building blocks needed to make the things we use every day. That makes it an important industry for investors to know about.

Keep reading to learn more about the best materials stocks and whether investing in them is right for you.

The COVID-19 pandemic severely affected the basic materials sector. However, demand recovered in 2021 as the economy improved. While the sector has faced some new headwinds from supply chain issues, passage of major infrastructure legislation in 2021 should drive increased demand for basic materials in the coming years.

Demand for basic materials is cyclical , making the sector's participants highly affected by changes in the health of the economy. If economic conditions weaken, demand for basic materials tends to decline, which lowers their prices.

These are three of the best materials stocks to consider:

Rio Tinto

One of the world's leading mining companies, London-based Rio Tinto produces major industrial metals -- iron ore, aluminum, and copper -- and several other important metals and minerals.

Rio Tinto focuses on these industrial metals because they are the ones the global economy most commonly consumes. The uses for iron ore, aluminum, and copper are numerous and growing:

Iron ore: The primary material for making the steel used for cars, appliances, buildings, and wind turbines.

The primary material for making the steel used for cars, appliances, buildings, and wind turbines. Aluminum: A lightweight metal and a vital component for many technology applications. Aluminum is used to make jet engines, electric vehicles, and mobile phones.

A lightweight metal and a vital component for many technology applications. Aluminum is used to make jet engines, electric vehicles, and mobile phones. Copper: Copper is an excellent conductor of electricity, making it essential for electronics and electric vehicles (EVs). It is also a vital component of many technology applications.

While these metals are highly sensitive to cyclical changes in the global economy, demand for the metals Rio Tinto produces should continue to grow. This company also boasts a strong balance sheet and some of the lowest-cost operations in the world. As a result, Rio Tinto is well-positioned to cope with changes in demand for these commodities.

Nucor

Nucor is the largest and most diversified steel and steel products company in North America. It’s also the continent’s largest steel recycler.

The company’s focus on steel positions it for two megatrends. First, steel is essential for making wind turbines, so it’s vital to the renewable energy industry. Steel is also crucial for infrastructure such as bridges and railways, making it a beneficiary of increased infrastructure spending.

Nucor has a low and highly variable cost structure. Because of that, it has a long history of generating free cash flow throughout the cycle. That has enabled the steelmaker to maintain a strong balance sheet and deliver its 48th straight dividend increase in 2021. This record put Nucor in the elite class of Dividend Aristocrats and on track to become a Dividend King.

Air Products & Chemicals

Air Products & Chemicals is one of the world’s leading industrial gases companies. It supplies essential industrial gases to the refining, chemical, metals, electronics, manufacturing, and food and beverage industries. It’s also a leading global supplier of liquefied natural gas (LNG) process technology and equipment.

The company is a major supplier of hydrogen, which could play an important role in fueling the economy in the future. In addition, its expertise in carbon capture and storage could help reduce greenhouse gas emissions. Add that to its importance to the growth of LNG, a widely used fuel, and Air Products is playing a vital role in helping the global economy transition to cleaner energy sources.

Air Products also boasts a strong financial profile, including an excellent balance sheet and healthy cash flow. That gives it the financial flexibility to expand its operations and pay a growing dividend. The company is a Dividend Aristocrat and delivered its 39th consecutive annual dividend increase in 2021.

Should you invest in materials stocks?

While all companies in the basic materials sector face risks related to the health of the economy, the best materials companies are well-positioned financially and benefit from a diversified portfolio of operations. The top materials companies have multiple businesses, investment-grade bond ratings, and relatively little debt, as well as low production costs that enable them to still make money even when prices decline.

Materials companies are more likely to perform well when the economy is booming, making these companies a better buy in bull markets. But, even when the economy is growing, fierce competition in the materials sector tends to restrict companies' abilities to generate substantial profit, which affects share prices.

In the decade that ended in 2020, the Dow Jones Global Basic Materials Index increased in value by only 20%, while the value of the S&P 500 rose by more than 240%. Consequently, investors should be aware of this disparity and allocate their money accordingly.