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Do you like gaining exposure to commodities for their diversification benefits? One way to get this exposure is through basic materials companies, although keep in mind they also have business risks separate from the risks of the commodities they produce.

With this idea in mind, we ran a screen on the basic materials sector for stocks that have upward market momentum, trading above their 20-day, 50-day, and 200-day moving averages. We then screened these names for those with strong profitability, indicated by DuPont analysis.

DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:

ROE

= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,

  • Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
  • Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.

Interactive Chart: Press Play to compare changes in market cap over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these stocks will continue rallying? Use this list as a starting point for your own analysis.

List sorted by distance above 200-day moving average.

1. Terra Nitrogen Company, L.P. (TNH): Produces and distributes nitrogen fertilizer products to agricultural and industrial customers. Market cap at $5.14B, most recent closing price at $277.70. The stock is currently rallying 5.06% above its 20-day moving average, 15.40% above its 50-day MA, and 52.38% above its 200-day MA. MRQ net profit margin at 64.58% vs. 46.05% y/y. MRQ sales/assets at 0.668 vs. 0.482 y/y. MRQ assets/equity at 1.117 vs. 1.413 y/y.

2. Solutia Inc. (SOA): Engages in the manufacture and marketing of performance materials and specialty chemicals used in a range of consumer and industrial applications. Market cap at $3.46B, most recent closing price at $28.30. The stock is currently rallying 1.08% above its 20-day moving average, 1.18% above its 50-day MA, and 39.82% above its 200-day MA. MRQ net profit margin at 10.27% vs. 9.61% y/y. MRQ sales/assets at 0.149 vs. 0.138 y/y. MRQ assets/equity at 3.837 vs. 4.832 y/y.

3. Metals USA Holdings Corp. (MUSA): Market cap at $560.85M, most recent closing price at $15.15. The stock is currently rallying 5.22% above its 20-day moving average, 10.06% above its 50-day MA, and 23.96% above its 200-day MA. MRQ net profit margin at 3.1% vs. 2.87% y/y. MRQ sales/assets at 0.503 vs. 0.462 y/y. MRQ assets/equity at 3.808 vs. 4.581 y/y.

4. Plains All American Pipeline, L.P. (PAA): Engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquefied petroleum gas and other natural gas-related petroleum products in the United States and Canada. Market cap at $12.98B, most recent closing price at $80.85. The stock is currently rallying 1.77% above its 20-day moving average, 0.90% above its 50-day MA, and 18.25% above its 200-day MA. MRQ net profit margin at 3.13% vs. 1.96% y/y. MRQ sales/assets at 0.578 vs. 0.528 y/y. MRQ assets/equity at 2.822 vs. 3.156 y/y.

5. CF Industries Holdings, Inc. (CF): Manufactures and distributes nitrogen and phosphate fertilizer products, serving agricultural and industrial customers worldwide. Market cap at $12.66B, most recent closing price at $192.99. The stock is currently rallying 4.10% above its 20-day moving average, 4.86% above its 50-day MA, and 16.76% above its 200-day MA. MRQ net profit margin at 25.54% vs. 16.18% y/y. MRQ sales/assets at 0.191 vs. 0.141 y/y. MRQ assets/equity at 1.974 vs. 2.161 y/y.

6. Targa Resources Partners LP (NGLS): Market cap at $3.84B, most recent closing price at $42.16. The stock is currently rallying 1.85% above its 20-day moving average, 1.79% above its 50-day MA, and 16.01% above its 200-day MA. MRQ net profit margin at 3.91% vs. 2.36% y/y. MRQ sales/assets at 0.529 vs. 0.478 y/y. MRQ assets/equity at 2.991 vs. 3.464 y/y.

7. Quaker Chemical Corporation (KWR): Develops, produces, and markets formulated chemical specialty products for various heavy industrial and manufacturing applications. Market cap at $548.95M, most recent closing price at $42.39. The stock is currently rallying 6.55% above its 20-day moving average, 6.49% above its 50-day MA, and 15.80% above its 200-day MA. MRQ net profit margin at 5.64% vs. 4.85% y/y. MRQ sales/assets at 0.343 vs. 0.316 y/y. MRQ assets/equity at 2.032 vs. 2.492 y/y.

8. Landec Corp. (LNDC): Designs, develops, manufactures, and sells polymer products for food and agricultural products, medical devices products, and licensed partner applications incorporating patented polymer technologies. Market cap at $168.63M, most recent closing price at $6.60. The stock is currently rallying 2.44% above its 20-day moving average, 1.36% above its 50-day MA, and 9.67% above its 200-day MA. MRQ net profit margin at 5.95% vs. 3.13% y/y. MRQ sales/assets at 0.378 vs. 0.352 y/y. MRQ assets/equity at 1.43 vs. 1.494 y/y.

9. Celanese Corporation (CE): Manufactures and sells chemical products worldwide. Market cap at $7.59B, most recent closing price at $48.40. The stock is currently rallying 4.31% above its 20-day moving average, 3.26% above its 50-day MA, and 7.75% above its 200-day MA. MRQ net profit margin at 5.89% vs. 3.85% y/y. MRQ sales/assets at 0.189 vs. 0.182 y/y. MRQ assets/equity at 6.352 vs. 8.943 y/y.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 9 Rallying Basic Materials Stocks With Strong Sources Of Profitability