I'm starting to see the whole of equipment, not just tools, as two tiers essentially. There may be a short moment where a high quality Tier 2 will outperform a Tier 1, but the difference is so small that the middle tier might not even exist. And you'll get the low quality Tier 3 upgrades shortly after due to the static drop system.
I do use an iron pick in a str build, but I haven't bothered to "upgrade" to a baseball bat over my wooden club... The difference would be minimal to non-existing and for a horde night I can stand there with the right-click pressed for as long as there are targets. The refunds from my full SexRex cover all my sta needs. I suppose next up is agi for more swing speed...
Knives, a Q5 Bone is better than a lowly Hunting Knife, even before mods, and the issue seems repeating in bows, spears, salvage tools, light armor, in other words, everything I've "seriously" used this far.
Edit: For iron tools, the issue is even worse of course, you'll have to replace the stone axe with three separate tools, (axe, pick and a hammer plus repair kits). Depending on play style, that's a lot of wasted inventory for marginal improvements.