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This could be the next sector to rally

Is the bottom in for commodity stocks?

In a big Monday call, R.W. Baird upgraded mining equipment makers Caterpillar and Joy Global to "outperform," saying that "the worst is behind" commodities, that the mining business is stabilizing, and that "history shows that being early pays off."

For Erin Gibbs, equity chief investment officer with S&P Capital IQ, such thinking makes sense.

"In Q1, both companies reported rather dismal earnings and they warned the next two, if not three, quarters were actually going to be worse," she said Monday in an interview with CNBC's "Trading Nation." "But clearly investors are looking much farther ahead, and they're looking at 2016, which actually has really great [expected] growth going forward."

The rally in oil-exposed stocks is likely fresh in the minds of material stock investors. The Market Vectors Oil Services ETF (OIH) has rallied 20 percent since its mid-March bottom—when all hope had appeared to be lost.

Joy Global
Source: Joy Global

Caterpillar and Joy are highly exposed to the mining business, which has been dismal of late due to falling commodity prices. Over the past year, Caterpillar and Joy have seen their shares fall 15.5 percent and 25 percent, respectively. But if commodity prices turn higher, these stocks should turn as well.

And valuation metrics may provide some support. Looking at Joy Global in particular, which rose 5.2 percent on Monday, Gibbs said the stock "is actually trading at a really good valuation. It's trading at below its one-year average [price-to-earnings ratio]. Really great dividend, share buybacks. So all around, a nice play."

As far as the charts go, Todd Gordon of TradingAnalysis.com said of the two, his preference would be Caterpillar.

Shares of the much larger company have already begun "moving off the bottom," Gordon said, and "there's a huge base right at $80," which is nearly $9 above current levels.

Baird's new target on Caterpillar is $100, a level the stock has not seen since December.

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