Value Brews in Chemicals, Base Metals

This column was originally published on RealMoney on March 14 at 1:36 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

The basic-industries sector began the year 8.8% overvalued and is now 16.8% overvalued, so finding bargains is no easy task. For investments in this group, I have been focusing on stocks that rate as buys with ValuEngine in subsectors such as the chemicals industry, which is 12.6% overvalued, and in the nonferrous base-metals industry, which is 8.7% overvalued.

I believe that investors should be raising cash from overvalued and overbought stocks on strength up to risky levels. Investors will also want to put some cash into buy-rated, undervalued and oversold stocks on weakness down to value levels.

Chemical companies Dow(DOW Quote), Lyondell(LYO Quote) and DuPont(DD Quote) all currently hold or have recently held buy ratings, and all have been or recently were at least 10% undervalued. The share price for each is below the 200-day simple moving average, which is a sign of technical weakness.

Nonferrous base-metals companies Alcoa(AA Quote), Phelps Dodge(PD Quote) and Freeport-McMoRan Copper & Gold(FCX Quote) have had buy ratings with mixed valuations, and share price has been declining toward the 200-day SMAs.

Make your portfolio a more potent mix by adding to chemical-stock positions on weakness.

Dow Chemical currently rates a buy with ValuEngine and is 10.3% undervalued, with fair value at $47.49. The weekly chart profile shows rising momentum, but the stock ended last week below its five-week modified moving average of $43.14. The stock is also below its 200-day SMA at $44.56, which indicates risk to the 200-week SMA at $39. If the stock does reach that level, investors will want to add to this position. Look for a rebound to at least my annual pivot of $44.77 at some point this year.

Lyondell Chemical, which is also rated a buy, is quite undervalued, at 31.1%, with fair value at $28.15. The stock's weekly chart profile is oversold, with the stock below the five-week MMA of $22.22 and on the cusp of the 200-week SMA of $19.37. A trend below the 200-week SMA would indicate risk to my annual value level at $15.48, where investors should add to this position. The upside is to my semiannual pivot at $22.20, and back to the 200-day SMA, which is declining at $25.79.