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Metals and Mining Sector May Be Shining Again

NEW YORK (TheStreet) -- Things were painful those of us who invested last year in metals stocks such as Barrick Gold (ABX) or Silver Wheaton (SLW).

But things could be changing. According to market analysts from prominent investment banks including Goldman Sachs, stocks and sectors that performed terribly during a previous year tend to do better in the first quarter of a new year.

Maybe that's why the metals and mining stocks are mainly going up while the rest of the stock market fizzles after the Federal Reserve's latest decision to reduce its bond-buying program by another $10 billion per month.

This can be seen in the performance this month of two exchange-traded funds, the PowerShares Dynamic Basic Materials ETF (PYZ) and the Market Vectors Gold Miners ETF (GDX). PYZ includes some commonly held companies such as Alcoa (AA) and Freeport-McMoRan Copper & Gold (FCX).

GDX includes in its top three holdings Barrick Gold (almost 15% of the ETF's holdings), Goldcorp (GG) (almost 13%) and Newmont Mining (NEM) (over 8% of the fund's holdings). Wednesday, after the Fed's announcement, GDX rallied 2.6% to $24 while the PYZ, which focuses mainly on industrial metals and basic materials, traded up 6 cents to nearly $49. Both ETFs pay a dividend yield that has on average been slightly less than 1%.

Here's a chart of each of the above-mentioned ETFs as evidence that up until today both have moved nicely higher from their 52-week lows. Let's begin with PYZ.

PYZ Chart
PYZ
data by YCharts

Even if you need reading glasses as I do, you can clearly see how far this sector has soared since June of last year. Also note that PYZ has corrected about 5% from its 52-week high of $51.37 since the beginning of this year. This isn't surprising with all the talk of slowdowns in China, Turkey and the emerging markets.

An article in The Wall Street Journal back on Jan. 11 quoted Thomas Lee, the chief U.S.equity strategist at JPMorgan Securities, who said, "We are bullish on metals and mining". He went on to say that "a lot of bad news is baked in, and it's a group that no one is really paying attention to." Really?

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