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Stock Picking Among 15 Basic Materials Stocks Is a Tough Call

Stocks in this article: AA ABX NEM XLB ADM BVN CLF DD DOW FCX IP MON MOS NUE X ZEUS XLB

NEW YORK (TheStreet) -- On Wednesday I decided to screen the basic materials sector to identify stocks that are suitable investments in 2014. Today I present my 'buy and trade' information for 15 stocks that are tradable but should not be a part of a longer-term investment allocation in today's overvalued and overbought stock market.

Even Alcoa (AA) which reports quarterly results in after-hours this afternoon does not qualify as a long-term investment at this time. The former Dow component is one of nine stocks in today's table of 15 that has a sell rating according to www.ValuEngine.com.

The aluminum producer is 29.5% overvalued in a sector that's 7.8% overvalued. I give the basic materials sector an underweight rating as 63.8% of the 390 stocks in this sector have sell or strong sell ratings. Alcoa has become a momentum trade with a positive but overbought weekly chart profile. The five-week modified moving average is $10.00 with its 200-week simple moving average at $10.96 vs. Wednesday's multi-year intra-day high at $10.88.

Another reason I screened the basic materials sector is to find one or two gold or silver mining companies for portfolio consideration, but again without a buy-rated stock. There are three gold or silver miners in today's table and two have hold ratings and are extremely undervalued.

Barrick Gold (ABX - Get Report) and Newmont Mining (NEM - Get Report)are 36.7% and 36.6% undervalued respectively. Investors considering an underweight stock-specific company for a diversified portfolio consider one of these gold miners that are worthy of my buy-and-trade strategy.

As an alternative consider an investment in the SPDR Basic Materials (XLB) ($45.68) which set a new multi-year intra-day high at $46.22 on Dec. 31 vs. the all-time high at $46.54 set in May 2008. This ETF includes former Dow component Alcoa, Dow component DuPont (DD) and gold miner Newmont Mining. The ETF is up 18.2% over the last 12 months and is above its 200-day SMA at $41.54. Note that the daily chart below shows this ETF tested its 200-day SMA in mid-April and again in late-June/early-July. The overall basic materials sector is down 24.9% over the last 12 months. The basic materials ETF has a positive but overbought weekly chart profile with its five-week MMA at $44.94. Semiannual and annual value levels are $43.29 and $37.62 with a monthly pivot at $45.38 and quarterly and semiannual risky levels at $46.18 and $47.54.

Courtesy of MetaStock Xenith

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