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We had a great start to the second quarter with a decidedly "risk on" slant to the markets. The latest manufacturing data from China was positive. The official Purchasing Managers' Index (PMI) that highlights large factories soared to its highest level in nearly a year to 53.1 in March, up from 51 in February. Furthermore, the Institute for Supply Management's manufacturing index rose to 53.4% in March from 52.4% in February which was slightly higher than the Street's expectations. A reading above 50% indicates expansion.

The statistics were positive. Nevertheless, many analysts were skeptical and the market took a nose dive prior to the start of earnings season based on renewed eurozone debt contagion fears affecting global growth and a disappointing U.S. jobs report. This caused many global growth stocks to take a beating in recent days. Now, optimism that China will overt a hard landing has caused risk assets to spike and the dollar to drop. The Wall Street rumor mill says China's first quarter GDP to be released later tonight will be 9%, besting the expected 8.4%. Risk assets appear to be back in vogue today with many surging over 5% based on China engineering a soft landing.

I believe China is in control of its economy and has plenty of fire power left to steer it whichever way it sees fit. Some feel with the outstanding returns we had in the first quarter, we have run too far too fast in 2012. One caveat to that scenario is the fact that we were so far in the hole by the end of 2011. The run in the first quarter of 2012 was induced when the ever-present reports of a European debt contagion debacle stopped. This allowed investors to focus on fundamentals and earnings rather than macro issues. Once everyone saw the value created by the fear of an EU sovereign collapse, it was off to the races led by tech and bank stocks. Now, I see the basic materials sector as an area to find value.

The following five companies are down significantly from recent highs and may post substantial comebacks if the global growth story comes to fruition. Please review the following briefs regarding my basic materials sector stock picks.

AK Steel Holding Corporation (AKS)

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AKS is up 7% today. The stock is trading down 54% from its 52 week high. The company has many fundamental positives. AKS has a forward P/E ratio of 5.78, an EPS growth rate of 130% for next year and an EPS growth rate of 26% for the next five years. AKS is a high beta stock with a beta of 2.56. AKS has a Price to book ratio of 2. AKS stated it will increase prices for all carbon flat-rolled steel products by $50 per ton. The increase is effective immediately with new orders.

Alpha Natural Resources, Inc. (ANR)

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ANR is up almost 9% today. The stock is trading down 73% from its 52 week high. The company has many fundamental positives. ANR has a forward P/E ratio of 5.78 and an EPS growth rate of 179.30% for next year. ANR is a high beta stock with a beta of 1.73. ANR has a Price to book ratio of .43. This stock appears to have bottomed. I see this as an excellent buying opportunity currently. The stock has technically broken out of a long term down trend.

Peabody Energy Corp. (BTU)

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BTU is up over 7% today. The stock is trading down 57% from its 52 week high. The company has many fundamental positives. BTU has a forward P/E ratio of 6.36, a PEG ratio of .43 and an EPS growth rate of 26% for next year. BTU is a high beta stock with a beta of 1.43. BTU has a Price to book ratio of 1.35. This stock has been out of favor for quite some time. I see this as an excellent buying opportunity.

Freeport-McMoRan Copper & Gold Inc. (FCX)

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FCX is up over 5% today. The stock is trading down 33% from its 52 week high. The company has many fundamental positives. FCX has a forward P/E ratio of 6.66, a PEG ratio of 1.40 and an EPS growth rate of 26% for next year. FCX is a high beta stock with a beta of 1.95. FCX has a Price to book ratio of 2.17. This stock has had several issues holding it back in recent months from natural disasters to strikes to low gold prices. All these issues appear to be resolved. I believe FCX is at an inflection point and this is an opportune entry point to start a position.

United States Steel Corp. (X)

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X is up almost 6% today. The stock is trading down 46% from its 52 week high. The company has many fundamental positives. X has a forward P/E ratio of 7.04 and an EPS growth rate of 48.66% for next year. X is an extremely high beta stock with a beta of 2.41. X has a Price to book ratio of 1.12. This stock has been out of favor for quite some time. I believe the risk/reward on starting a position in this stock now is positive.

Conclusion

Volatility is increasing based on conflicting data points regarding global growth prospects. The one data point I believe underpins a positive global growth scenario is Alcoa's (AA) recent earnings report. Alcoa reports strong global demand despite the issues with the eurozone. This was a shocker to me and the rest of the market. Almost no one was predicting a beat for Alcoa. I lot of people are saying it is hard to find value in the market today with the recent amazing run stocks have had. Well, here it is. These stocks may see a resurgence partially based on investors rotating out of their winners into these perennial underperformers.

Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest layering in a quarter at a time on a weekly basis to reduce risk and setting a 5% trailing stop loss order to minimize losses.

Source: 5 Basic Materials Stocks With Significant Upside Potential