Many commodity-related stocks hit major lows in late 2015 and early 2016. In recent weeks many of those same stocks have recovered to new or close to new multi-year highs. This volatility is due to widely fluctuating prices in the underlying basic materials those stocks trade in. The price of crude oil fell to $26 per barrel in February but then rallied from there to above $50 and is now trading around $44 after a minor pullback. Iron ore fell below $35 per ton earlier in the year and is now back up near $60. Gold has moved from $1,060 at the start of the year to above $1,340. The same story can be told for silver and platinum, grains, meats and other soft commodities.

There are 3 reasons I favor commodity stocks over the next few months.

First, for obvious reasons, companies that make their living by producing basic materials -- the gold miners, the steel makers, the oil drillers, etc. -- have seen their fortunes fall and rise with these broader movements in commodities. Those movements are closely tied to the expansion-contraction cycles of the global economy. Of all common stocks, commodity stocks trade most closely in synch with the rate of global growth. The greater the growth, particularly in the industrial sector, the greater the demand for their product. Since it seems now that the reports of the demise of the global economy have been largely exaggerated, we should continue to see a tailwind behind most of the stronger commodity stocks.

Second, the near-zero or even negative interest rate policies of the central bankers have enabled these companies to buy back their own shares as well as make needed investment in new equipment and upgraded technology. This will both enable commodity companies to boost their bottom lines through greater efficiency of production, and to directly benefit from that increase through share participation.

Third, the world has been in a flat to deflationary cycle for the better part of 5 years now. That is likely to change in the near future, especially so as stimulus from all that free cash begins to take effect. As we begin to see PPI and CPI numbers creep up to multi-year highs, this will in turn boost commodity prices and therefore directly benefit the bottom lines of commodity stocks.

And fourth, we are in an election year which means that both parties will be commiting their administrations to massive infrastructure spending. Analysts are already pricing in this increase in demand and thus beginning to raise price targets on commodity companies.

I recently developed a proprietary screen for use with commodity stocks. In addition to a number of basic filters (like avaregae volume and current price), this screen incorporates a number of key metrics to determine which stocks in the Basic Materials sector are currently undervalued. I also designed the screen to highlight companies with strong sales growth relative to price, and companies that are currently being favored by analysts with upgrades and raised price targets, among other things.

The stocks that recently turned up on this screen (August 15, 2016) are listed below. I am keeping thse on a watch list and waiting for opportune times to begin adding a few of these to my portfolio. A number of them are showing very bullish charts with clear technical entry points. As always, be sure to do your own due diligence on these companies before you consider investing.

Of these let me highlight a few showing bullish technical setups. Again, these are not buy recommendations. This is for educational purposes only.

Plastics and textiles maker Huntsman ($HUN) is showing an "inverted Head&Shoulders Continuation" pattern with breakout:

Marathon Petroleum (MPC) is showing a "Bullish Base" pattern with a bullflag at the R-line, nearing breakout:

Steel stocks have been strong in recent weeks and Steel Dynamics ($STLD) is the strongest of the group fundamentally. The chart below shows a well established uptrend with a pullback to the support line.