Cyclicals Look Like the Place to Be

 | Aug 31, 2011 | 5:40 PM EDT
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Are the cyclicals the biggest steal going into September? Typically I am worried about big selloffs in September, as it has been such a cruel month. But the combination of some good macro data out of the U.S., a stable environment for minerals and weakness in the raw-material costs for most of these companies may make them safer and more immunized from hammerings than I thought coming into this month.

Consider Deere (DE). This company has been written off as an ag play despite endless insistence that things are pretty darned good. Plus we are going into an election year, and the farmers always get their due in an election year. The stock has traded horribly. That's pretty ridiculous.

Joy Global's (JOYG) terrific report basically tells you that Caterpillar (CAT) is going to have a great one. We keep thinking that with business in the U.S. seeming punk and China tightening, Caterpillar has nowhere to go but down. But Caterpillar is an energy play that uses a lot of steel. Energy has come down to where Caterpillar says it makes the most money, and steel has been cheap and is getting cheaper.

All of the minerals companies have acted like they are in a recession, but that's just not panning out right now.

I think that going into the final month of the quarter, this group is less vulnerable than I have seen it in some time, especially after the terrific Purchasing Managers Index number we got today.

The group, even after this run off the bottom, may be the place to be if we have weakness coming up after this terrific run for the averages.

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