Source: Thomson Reuters
My "Buy and Trade" Strategy for XLB. ($35.08) -- My annual pivot at $35.72 has been a strong magnet so far in 2012, and this level must be cleared for upward momentum on the daily chart to begin again. My weekly risky level is $36.71 with a quarterly risky level at $42.96. If the breakout does not occur, beware that my semiannual value levels lag at $24.37 and $23.11.
The above table shows data from ValueEngine.com covering the 30 components of the XLB listed from top to bottom by percentage of index weight. This ETF is heavily weighted with DuPont (DD) (11.14%) and Monsanto (MON) (11.1%). Note that there is only one gold mining stock, Newmont Mining (NEM).
Reading the TableOV/UN Valued -- The stocks with a red number are undervalued by the shown percentage, according to ValuEngine. Those with a black number are overvalued. VE Rating -- A 1-Engine rating is a strong sell, a 2-Engine rating is a sell, a 3-Engine rating is a hold, a 4-Engine rating is a buy and a 5-Engine rating is a strong buy. Last 12-Month Return -- Stocks with a red number declined by the shown percentage over the last 12 months, while stocks with a black number increased. Forecast 1-Year Return -- Stocks with a red number are projected to decline by the shown percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.
Analysis of the Basic Material SectorThe basic material sector is undervalued by 14.7%, according to ValueEngine, which is a reason to consider investing in this sector. Keep an eye on the price-to-earnings ratios, as several components have P/E ratios above 20. Looking at the performance measures, only four out of 30 stocks in the XLB have traded higher over the past 12 months: Ecolab (ECL), CF Industries (CF), Sherwin-Williams (SHW) and FMC Corp. (FMC). Beware, however that these names are trading near all-time highs. FMC is rated a hold, while the other three are rated buy, according to ValuEngine. To summarize, the XLB needs to breakout above my annual pivot at $35.72 to regain the momentum that would signal that Federal Reserve policy will fuel a sustainable economic recovery both in the U.S. and abroad. At the time of publication, the author did not own any of the stocks in the table or XLB. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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