Suppose you want to pick stocks to ride on the seemingly sustainable boom in Commodities. What would you do, since it would be difficult to find undervalued stocks in this Sector? Leaving out the Oil stocks in Energy and the Dry Bulk Carriers in Transportation, let's examine the Basic Industries sector which has the following industries: Steel, Non-Ferrous Base Metals, Precious Metals, Forest products, Chemicals, Containers, and Metal Fabricators. Some people may not know that Companies like Monsanto, Mosaic, Syngenta, Bunge and CF Industries which are listed under Chemicals, actually have exposure to Agricultural commodities via products such as genetically advanced seeds, grain processing and trading, fertilizers, herbicides, animal feed microbials, biopolymers and enzymes. When a sector is at the top of a cycle, looking for companies with a track record and less volatility is important,since you are not going to find any with good valuations. Here we plot 179 stocks in the Basic Industries sector on a Self-Organizing Map of Viscovery software. The stocks are clustered and positioned on the Map, according to their degree of similarity simultaneously taking into account, the inter-relationship with the more than 30 variables in the ValuEngine quantitative Model. The Sharpe Ratio component Map in the image above is ideal for locating good, safe stocks in the Basic Industries sector.
Our Self-Organizing Map is able to pinpoint the stocks with a higher Sharpe Ratio in Basic Industries:
MOS The Mosaic Company
MON Monsanto
SYT Syngenta
CF CF Industries
FMC FMC Corporation
BG Bunge Ltd
PCP Precision Castparts Corp
BVN Buena Ventura
All the stocks above are listed under Chemicals, except for BVN which does Silver and Gold mining, and PCP which does specialty high value precision casting of alloys for the Aerospace, Communications and Medical industries.
BG offers exceptional opportunity because it is the only one with high Sharpe Ratio and yet is Undervalued. (at least for now)
