NEW YORK (TheStreet) -- Despite the jitters this week in commodities markets, including a report from Goldman Sachs (GS) suggesting that commodities prices will take a breather, many analysts believe that macroeconomic trends will keep the materials sector strong.
"Materials are an early indicator of economic cycles, pointing the way to strength in other sectors, such as manufactured goods," said Kevin Baker, senior analyst from TheStreet Ratings.
With many signs pointing to an improving international economy - despite the endless headlines focusing on regional conflicts and natural disasters - the market has pointed the way forward for the materials sector, which includes the metals and mining, chemicals, construction materials, and paper and forest products industries.
According to the U.S. Department of Commerce's February report on manufacturing and trade inventories and sales, inventories are historically low in relation to sales volume, indicating pent-up demand for materials as businesses restock their shelves.Year-over-year, there were declines of over 1% in inventories for motor vehicle and parts dealers, as well as for furniture, home furnishings, electrical and appliance stores. Taking away seasonal adjustments, the inventory decline for the furniture, home furnishings, electrical and appliance group was a whopping 5.8%. Regarding Goldman's report on the overheated commodities trade, Sean Broderick, natural resources analysts for Weiss Research and uncommonwisdomdaily.com, told TheStreet that "Goldman always talks the book and they probably had short positions, reaping the benefits as the sheep followed their recommendations to move out of commodities." Despite the inevitable setbacks, Broderick said "there is big bull market in commodities in-place, that I think could run for another five to ten years." TheStreet's stock ratings model has assigned buy ratings of A-minus or higher to five names in the Materials sector. The model produces a composite rating that incorporates a stock's performance and volatility, incorporating technical and fundamental analysis. Here are our five materials sector picks:
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