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Quarter-End Insights

Basic Materials: The Most Expensive Sector We Cover

With shares propped up by unsustainable Chinese demand, basic materials stocks are trading at a whopping 44% premium to our estimate of intrinsic value.

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  • On a market-capitalization-weighted basis, our basic materials coverage trades at a 44% premium to our estimate of intrinsic value, making it the most expensive sector we cover. 
  • Metals and mining stocks look especially expensive. Metals prices have been propped up by a combination of Chinese stimulus and supply cuts, but neither source of strength looks sustainable.  
  • U.S. housing plays remain among the pockets of opportunity in an otherwise overvalued sector. We expect housing activity will continue to build momentum in the remainder of the year.  
  • The remaining obstacles to major consolidation within the seeds and crop chemicals industry are likely to be overcome. We expect all three major deals to close this year. 

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Daniel Rohr has a position in the following securities mentioned above: CMP, MON. Find out about Morningstar’s editorial policies.