This column was originally published on RealMoney on March 14 at 1:36 p.m. EST. It's being republished as a bonus for TheStreet.com readers.
The basic-industries sector began the year 8.8% overvalued and is now 16.8% overvalued, so finding bargains is no easy task. For investments in this group, I have been focusing on stocks that rate as buys with ValuEngine in subsectors such as the chemicals industry, which is 12.6% overvalued, and in the nonferrous base-metals industry, which is 8.7% overvalued.
I believe that investors should be raising cash from overvalued and overbought stocks on strength up to risky levels. Investors will also want to put some cash into buy-rated, undervalued and oversold stocks on weakness down to value levels.
all currently hold or have recently held buy ratings, and all have been or recently were at least 10% undervalued. The share price for each is below the 200-day simple moving average, which is a sign of technical weakness.
Nonferrous base-metals companies
Freeport-McMoRan Copper & Gold
have had buy ratings with mixed valuations, and share price has been declining toward the 200-day SMAs.
Make your portfolio a more potent mix by adding to chemical-stock positions on weakness.
Dow Chemical currently rates a buy with ValuEngine and is 10.3% undervalued, with fair value at $47.49. The weekly chart profile shows rising momentum, but the stock ended last week below its five-week modified moving average of $43.14. The stock is also below its 200-day SMA at $44.56, which indicates risk to the 200-week SMA at $39. If the stock does reach that level, investors will want to add to this position. Look for a rebound to at least my annual pivot of $44.77 at some point this year.
Lyondell Chemical, which is also rated a buy, is quite undervalued, at 31.1%, with fair value at $28.15. The stock's weekly chart profile is oversold, with the stock below the five-week MMA of $22.22 and on the cusp of the 200-week SMA of $19.37. A trend below the 200-week SMA would indicate risk to my annual value level at $15.48, where investors should add to this position. The upside is to my semiannual pivot at $22.20, and back to the 200-day SMA, which is declining at $25.79.
ValuEngine recently downgraded DuPont to hold from buy, but that doesn't lessen its attraction. It's currently 7.9% undervalued, with fair value at $45.09. The weekly chart profile shows rising momentum, and the stock ended last week just above its five-week MMA of $40.83, with the 200-week SMA at $43.06. DuPont traded around its semiannual pivot at $39.73 between Jan. 24 and Feb. 8, which was an opportunity to add to this position. A pop above its 200-day SMA at $41.81 would target the 200-week SMA and be a chance to sell. My annual value level is $35.96.
Solidify your portfolio by adding to nonferrous base-metals stock positions on weakness.
Alcoa recently received an upgrade from ValuEngine, to buy from hold. It's 12.2% undervalued, with fair value at $33.13. The stock tested its 200-week SMA at $28.61 last week, and is above its 200-day SMA at $27.57. The weekly chart profile is negative, with the five-week MMA at $29.84. Long-term investors will want to add to positions at the 200-day SMA at $27.57 and on weakness to my semiannual value level at $24.27.
Freeport McMoRan Copper & Gold rates a buy with ValuEngine and is 11.0% undervalued, with fair value at $55.94. The weekly chart profile is negative, with the five-week MMA at $54.06. The stock tested its 200-day SMA at $47.50 last Friday, which is a level at which investors should consider adding to this position. The stock closed Monday between my quarterly and semiannual pivots of $49.69 and $50.57, which should remain as magnets. Below those levels is risk to my semiannual value level at $41.64, the next level at which I'd add to positions.
Phelps Dodge trades with a 2-for-1 split this week. The stock rates a buy with ValuEngine, but is 22.4% overvalued, with split-adjusted fair value at $55.11. The stock peaked most recently at $83.56 on Feb. 2, which was between my monthly risk levels of $77.55 and $84.90. In that price range, investors could have reduced positions. Its weekly chart profile is negative, with the five-week MMA at $72.11. I showed risk to my semiannual value level at $66.46, which was tested last week. Investors who reduced holdings earlier could have replaced a portion of their holdings at $66.46 after raising some cash. The next level at which to buy on weakness is the 200-day SMA at $61.58. My annual value level is at $46.75.
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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
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 --
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