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Portfolio Manager Insights
Favorable supply-and-demand dynamics make materials and industrials stocks attractive
Fidelity’s Dan Kelley explains why he’s investing in materials and industrials companies that he considers mispriced based on their earnings growth potential.
- Compelling supply-demand technicals, a rebound in manufacturing, and the likelihood of persistent inflation create a favorable backdrop for many companies in the materials and industrials sectors, says Fidelity Portfolio Manager Dan Kelley.
- “The conflicts in Iran and Ukraine, and constraints on shipping through the Strait of Hormuz, have been a wake-up call regarding the risks confronting businesses and governments,” says Kelley, who co-manages Fidelity Advisor® Equity Growth Fund with Chris Lin. “Many companies and governments have not invested enough to maintain an adequate supply of critical raw materials, but recent geopolitical developments have galvanized their determination to heighten focus on strategic resources, leading to what I consider promising investment opportunities.”
- In helming the diversified, growth-oriented equity strategy, Kelley looks for companies that he believes are mispriced based on their growth potential. He favors businesses with the potential to achieve earnings growth that is meaningfully better than consensus estimates. He also wants the stocks he selects to be reasonably valued, based on Fidelity’s estimate of their earnings growth potential.
- With companies and governments increasing spending to meet the needs of their populations and provide for their defense, Kelley believes demand will outstrip supply globally.
- To this end, the fund has invested in names such as aluminum producer Alcoa, steel maker Steel Dynamics and global steel producer ArcelorMittal, with Kelley believing each will benefit from inflation, which he expects to remain higher for longer.
- In recent months, he boosted the fund’s allocation to capital goods companies within the industrials sector. Kelley cites U.S. Purchasing Managers Index data from 2026 that have shown accelerating expansion in the manufacturing sector, with recent readings reaching four-year highs. He notes that this growth has been driven by increased production and new orders, although some activity is linked to inventory stockpiling rather than rising demand alone.
- “I believe the U.S. is emerging from an industrial recession that has lasted three years,” Kelley says. “In the current environment of not-too-hot/not-too-cold economic growth, industrial companies with relatively short sales and production cycles have experienced strong demand.”
- Accordingly, Kelley has invested in companies such as engine maker Cummins, truck manufacturer PACCAR and climate solutions provider Trane Technologies.
- “I have conviction that each of these companies is well-positioned for growth as U.S. manufacturing expands,” he concludes.
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