During recessionary times, some of the safest places to invest in the stock market can be found in materials company. The gold & silver sub-industry has been one of the few positive gainers year-to-date. Generally more stable than most industries through troubled times, the basic materials sector is in a great position to make money in 2008.

Chemicals – Jimvesting Picks Mosaic (NYSE: MOS)
The Mosaic Company doubled about 2.5 times in 2008, and they have room to grow. While they hit a high at around $110 and are down now to $80, I am thinking they will fall off a bit more ($72-$76) which is where you buy. So what exactly do they do? Mosaic produces chemical fertilizers used to feed crops and animals. The agriculture sector is one of the safest in a recession, and Mosaic has been red hot.

The S&P upgraded their credit rating to “BB+” on January 11th because of strong operating results, and Reuters/Multex finds them outperforming the market for 2008. Their competitors, Agrium (NYSE: AGU) and Potash (NYSE: POT) are simply not as safe as Mosaic in an economic downtrend. Agrium has a much smaller market cap at under 8 billion (Mosaic is at 35.5 billion), and you need a large-cap performer in these conditions. Potash has the market cap, but is trading at a higher multiple then Mosaic and their PEG ratio of 3.8 is too high for their own good. Time to get bullish on Mosaic.

Metal Mining – Jimvesting Picks Rio Tinto (NYSE: RTP)
Looking at the 5-year chart, the sky is the limit for Rio Tinto plc. Top competitor Vale (NYSE: RIO) is in talks to acquire Anglo-Swiss mining group Xstrata, but “warned a deal would be difficult to pull off in current market conditions.” I don’t think it will go through, but on the other hand, RTP is an acquisition target for BHP Billiton… a much more likely deal. This merger “would make large cost reductions possible” according to Standard and Poor’s, and would lend added exposure to oil and natural gas.

While the merger proposition looks promising, even it fails, Rio Tinto has a lot of upside after a drop-off in January. Producing minerals and metals from diamonds and copper to coal and salt, RTP has the market hedging we love to see. Commodity prices should remain relatively strong in a receding economy, so Rio Tinto has that safe play look with the strong upside of being acquired.

Gold & Silver – Jimvesting Picks Yamana Gold (NYSE:AUY)
If you want to be in a thriving gold market, where the commodity recently hit all-time highs, you want Yamana! A company that exploded onto the scene in 2005 as a hyper-growth company of sorts, Yamana recently pulled back from 18 to 15, get them under 15 and you won’t be sorry.

Industry experts have a positive outlook on the gold sub-industry, and expect another price increase for 2008. That’s good news for Yamana, just look at the chart to the right comparing Yamana to the price of gold! The stock was recently cut from “top pick” to “buy,” but this doesn’t worry us too much. In fact, the price drop that this ignited maybe just the window we need to buy it up again. Yamana operates in Latin America and has been up 16.5% YTD. In a struggling domestic market, this is just the ticket.

Industrial Metals – Jimvesting Picks US Steel (NYSE: X)
United States Steel is our X-factor of 2008. Steel is in high demand, and US Steel is $20 off their high! They were recently upgraded from “buy” to “aggressive buy,” and for good reason. X has reduced their debt and increased free cash flow in recent years, but they are still of high risk due to exposure to the volatile auto and construction markets. But global consolidation of the steel industry is allowing X to capitalize on opportunity.

US Steel’s biggest problem over the last five years has been unfavorable health care & pension costs. But these costs are now in decline, and X seems to be regaining pricing power. Our target price for US Steel is $125, so look for them to get up around $120 relatively soon on a projected recovery from low demand for distributors.

Basic Materials is a solid play for a slipping economy. Prices rarely dive-bomb like they would in the financial or technology sectors, and the relatively low downside allows for some strong plays.

-Jimvesting

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