It seems counterintuitive, but after I focused on the 16.7% overvalued energy sector on

Jan. 27, it continued to generate gains.

My model suggested that the best plays in energy were the companies with a market capitalization of more than $90 billion.

So far this strategy is working;

Exxon Mobil

(XOM) - Get Report

shares popped $1.82 on Monday to $63.11 after the company reported a staggering $10.7 billion in earnings for its fourth quarter, solidly beating estimates. That helped big oil on Monday, too.

The cream rising to the top of my screening process indicates the same approach is smart for health care, as well.

Currently, the sector is just 4.3% overvalued. My screens of health care companies include the big-cap pharmaceuticals, those with a market capitalization of more than $15 billion.

According to ValuEngine, seven big-cap names rate a buy, and

Pfizer

(PFE) - Get Report

rates a strong buy.

The table below shows the best-rated Big Pharma companies, but some look better than others when it comes to valuation, weekly chart profile and where to buy on weakness or sell on strength.

Influencing recent action is a positive earnings report from

Merck

(MRK) - Get Report

and a negative report from

Wyeth

(WYE)

.

Pfizer has the best profile of the group with its strong buy rating from ValuEngine. It also has an undervalued reading of 26.2% relative to its fair value at $35.13. On

Jan. 5, I profiled Pfizer as the best of the

Dow

30 for 2006. The stock is up 11.2% for the year to date.

Pfizer recently broke above its 200-day simple moving average at $25.35 and appears headed to my quarterly risky level at $28.35. The weekly chart profile for Pfizer has rising momentum, with the five-week modified moving average at $24.50 and the 200-week simple moving average at $30.48. According Thomson/First Call, Wall Street analysts show a median price target at $29 and a high price target at $34, which matches my positive outlook.

ValuEngine's Buy-Rated Pharmas

Abbott Labs

(ABT) - Get Report

is 10.2% undervalued, with fair value at $47.82. The weekly chart profile shows rising momentum, with the five-week MMA at $41.48 and the 200-week SMA at $42.88. My quarterly risky level of $45.21 is in line with the Thomson/First Call median analyst price target of $46.

AstraZeneca

(AZN) - Get Report

is 7.12% overvalued, with fair value at $44.87. The weekly chart profile shows declining momentum, with the five-week MMA at $48.26 and the 200-week SMA at $42.21. My quarterly value level of $44.32 and monthly risky level at $50.68 straddle the Thomson/First Call median analyst price target of $48.

Bayer

(BAY)

is 1.4% undervalued, with fair value at $42.13. The weekly chart profile shows overbought momentum, with the five-week MMA at $41.45. I expect Bayer to trade between my quarterly value level at $37.63 and my quarterly risky level at $42.73.

Forest Labs

(FRX)

is 15.1% undervalued, with fair value at $53.21. The weekly chart profile shows overbought momentum, with the five-week MMA at $42.74 and the 200-week SMA at $47.76. The stock's holding my quarterly pivot at $45.28 would target my semiannual risky level at $50.90, which lines up with the Thomson/First Call median analyst price target of $50.

Eli Lilly

(LLY) - Get Report

is 18.6% undervalued, with fair value at $70.46. The weekly chart profile shows rising momentum, with the five-week MMA at $56.45 and the 200-week SMA at $61.23. My semiannual value level is $54.16, with a quarterly pivot at $61.01 and annual risky level at $70.54. The pivot is in line with the Thomson/First Call median analyst price target of $60.50.

Merck is 17.7% overvalued, with fair value at $29.27. The weekly chart profile shows overbought momentum, with the five-week MMA at $32.79 and the 200-week SMA at $42.70. My semiannual value level is $28.33 with annual risky level at $56.32. Shares are above the Thomson/First Call median analyst price target of $34.

Wyeth is 1.2% undervalued, with fair value at $47.50. The weekly chart profile shows rising momentum, with the five-week MMA at $46.57 and the 200-week SMA at $42.03. My quarterly value level is $41.72, with my annual risky level at $58.45. The Thomson/First Call median analyst price target of $52 is in the middle of this range.

My Metrics Explained

I evaluate the U.S. capital markets and profile all sectors, industries or specialty groups of companies. There are more than 6,000 stocks in my database.

Remember that when investing and trading in the U.S. capital markets and specific stocks, decisions should be made only after evaluating both fundamental and technical considerations. It is also equally important to manage risk/reward by having levels at which to buy on weakness and sell on strength. The way to do this is to enter limit orders to buy at a price below the market, or to sell at a price above the market.

Combining fundamentals and technicals is like trying to mix oil and water, but I believe it is necessary to do so, to the best of your ability. The levels at which to buy or sell can be used regardless of the fundamentals or technicals.

My discipline involves a three-pronged approach to measuring the risk/reward for trading or investing:

Fundamental

I use ValuEngine to define my fundamental ratings.

Strong buy

: Long-term investors should start a position now.

Buy

: Buy on weakness to a value level.

Hold

: Add to an existing position on weakness to a value level, and reduce an existing position on strength to a risky level.

Sell

: Reduce on strength to a risky level.

Strong sell

: Liquidate now as a source of funds.

Weekly Chart Momentum

This approach measures the technical strength of a stock.

Overbought

: 12x3 weekly slow stochastic above 80 on a scale of zero to 100.

Rising

: 12x3 weekly slow stochastic rising above 20, but below 80.

Flat

: 12x3 weekly slow stochastic not rising or declining, but between 20 and 80.

Declining

: 12x3 weekly slow stochastic is declining below 80, but above 20.

Oversold

: 12x3 weekly slow stochastic is below 20 on a scale of zero to 100.

Key Technical Levels

I identify these as a price at which to buy on weakness and at which to sell on strength.

Moving averages on daily charts

: The 21-day, 50-day and 200-day simple moving averages (SMAs).

Moving averages on weekly charts

: The five-week modified moving average (MMA) and the 200-week simple moving average (SMA).

Value levels and risky levels

: My model includes proprietary analytics that evaluate the past nine closes in several time horizons: weekly (W), monthly (M), quarterly (Q), semiannually (S) and annually (A).

Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan, and the author of

TheStreet.com Technology Report

newsletter. At the time of publication, he had no positions in any of the securities mentioned in this column, but holdings can change at any time. Early in his career, Suttmeier became the first U.S. Treasury bond trader at Bache. He later began the government bond division at L. F. Rothschild. Suttmeier went on to form Global Market Consultants as an independent third-party research provider, producing reports covering the technicals of the U.S. capital markets. He also has been U.S. Treasury strategist for Smith Barney and chief financial strategist for William R. Hough. Suttmeier holds a bachelor's degree from the Georgia Institute of Technology and a master's degree from Polytechnic University. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback --

click here

to send him an email.