Monday Morning's Movers: LGF, MSFT, SRE >>> READ MORE

The 3 Best Sectors to Buy for 2014

The best stocks to buy for the coming year should come out of these three slices of the market

      View All  

Best Sector #2: Materials Stocks

best-stocks-to-buy-2014-materials-stocks-xlbBeyond energy, materials might also offer potential in 2014 as a cyclical play.

Some claim that we at the mercy of a commodities “super cycle” that will mean nothing but pain for metals, energy and agricultural commodities. But after materials stocks have taken a pounding in the last few years, it’s hard to argue there’s much more room for declines.

According to financial data provider FinViz, as a group, basic materials stocks are the only core sector of the S&P 500 that currently trades for a price-to-sales ratio of less than 1. Also, forward earnings estimates show materials stocks trading on average for a current P/E of about 14.7 — the second-lowest sector in the S&P — and a forward P/E of 13.1. That’s much less than the broader market’s average, and if you’re concerned about overstretched valuations in a sector like tech than it’s worth looking at how “cheap” materials stocks are.

Some I’m watching include base metals stocks like Alcoa (AA) and Southern Copper (SCCO), but also chemicals companies like Huntsman (HUN) and DuPont (DD).

One big risk, of course, is that the dollar will remain strong and keep commodity prices soft. And the idea of “tapering” at the Fed surely will keep a floor under the greenback in 2014.

But given how long the sector has sat out and the recent strength in materials, there’s momentum as we enter 2014. Just look at the 14% gains for the Materials SPDR (XLB) since July vs. 11% gains for the S&P 500 as proof that this late-blooming sector is looking good right now.

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC