Amid the much ballyhooed cyclical stock resurgence, the materials sector is performing admirably this year. The S&P 500 Materials Index is higher by almost 14% year-to-date.

Within that space, metals and mining equities are driving upside, and some analysts believe that scenario has durability, all good news for the Invesco DWA Basic Materials Momentum ETF (PYZ).

PYZ follows the Dorsey Wright® Basic Materials Technical Leaders Index, which is comprised of 30 materials stocks from the NASDAQ US Benchmark Index. The benchmark is rooted in the famed Dorsey Wright relative strength methodology. PYZ currently holds 32 stocks.

“Mining and metals stocks appear to be entering a strong period, and Alcoa should be one of the big winners in the space, according to Morgan Stanley,” reports Jesse Pound for CNBC. “Analyst Carlos De Alba published a bullish note on the industry on Tuesday evening, saying that the stocks should outperform once the sector pushes through a period of short-term volatility.”

PYZ 1 Year Performance

Multiple Positives for PYZ Holdings

Morgan Stanley’s enthusiasm for Alcoa is relevant to investors considering PYZ because the Invesco exchange traded funds allocates 3.62% of its weight to that stock. Just one other ETF has a larger weight to Alcoa.

The aluminum producer, once a member of the Dow Jones Industrial Average, is improving profitability and its balance sheet, indicating it could build on its 47.11% 2021 gain. As it is, Alcoa helped PYZ to a year-to-date gain of 21.23%, putting the ETF more than 700 basis points ahead of the aforementioned S&P 500 Materials Index.

“We expect the company to benefit from a structural shift in the aluminum market led by China’s decarbonization policies (~5% of country’s carbon emissions) and the 45Mt capacity cap leading demand to outpace supply by 2023,” according to Morgan Stanley.

Adding to the case for PYZ is analysts’ bullishness on steel equities. For example, JPMorgan steel analyst Michael Glick recently issued “overweight” ratings on Steel Dynamics (STLD) and Reliance Steel (RS). Steel Dynamics is the largest component in PYZ. Add Reliance into the mix and the two stocks combine for 7.64% of the ETF’s roster.

The average market capitalization of PYZ components is $11.83 billion, according to issuer data. The $212.3 million fund debuted in October 2006.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.