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Do you want to gain exposure to commodities? One idea is to use stocks from the basic materials sector. With this idea in mind, we ran a screen.

We began by screening the basic materials sector for stocks that are rallying above their 20-day, 50-day, and 200-day moving averages, indicating that these stocks have strong upward momentum.

Then to analyze these companies' profitability, we ran DuPont analysis on the names. 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.

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

Tool provided by Kapitall.

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

List sorted by distance above 200-day moving average.

1. American Vanguard Corp. (NYSE:AVD): Engages in the manufacture, development, and marketing of specialty chemical products for agricultural and commercial uses in the United States and internationally. Market cap at $691.82M, most recent closing price at $24.85. The stock is currently trading 0.81% above its 20-day moving average, 3.21% above its 50-day MA, and 53.10% above its 200-day MA. MRQ net profit margin at 10.01% vs. 7.59% y/y. MRQ sales/assets at 0.245 vs. 0.212 y/y. MRQ assets/equity at 1.816 vs. 1.817 y/y.

2. Landec Corp. (NASDAQ: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 $182.43M, most recent closing price at $7.14. The stock is currently trading 3.68% above its 20-day moving average, 7.73% above its 50-day MA, and 17.81% 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.

3. Royal Gold, Inc. (NASDAQ:RGLD): Operates precious metals royalties. Market cap at $4.62B, most recent closing price at $78.47. The stock is currently trading 14.32% above its 20-day moving average, 23.04% above its 50-day MA, and 14.57% above its 200-day MA. MRQ net profit margin at 37.33% vs. 35.23% y/y. MRQ sales/assets at 0.033 vs. 0.029 y/y. MRQ assets/equity at 1.184 vs. 1.326 y/y.

4. Quaker Chemical Corporation (NYSE:KWR): Develops, produces, and markets formulated chemical specialty products for various heavy industrial and manufacturing applications. Market cap at $527.19M, most recent closing price at $40.71. The stock is currently trading 2.83% above its 20-day moving average, 2.13% above its 50-day MA, and 12.09% above its 200-day MA. MRQ net profit margin at 6.73% vs. 6.63% y/y. MRQ sales/assets at 0.34 vs. 0.336 y/y. MRQ assets/equity at 1.989 vs. 2.461 y/y.

5. Monsanto Co. (NYSE:MON): Provides agricultural products for farmers in the United States and internationally. Market cap at $41.91B, most recent closing price at $78.56. The stock is currently trading 6.23% above its 20-day moving average, 4.63% above its 50-day MA, and 7.16% above its 200-day MA. MRQ net profit margin at 25.51% vs. 24.64% y/y. MRQ sales/assets at 0.229 vs. 0.211 y/y. MRQ assets/equity at 1.728 vs. 1.786 y/y.

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

Source: 5 Rallying Basic Materials Stocks With Strong Sources Of Profitability