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Jefferies bumps materials stocks to overweight, lists top picks

An employee in a lumber warehouse in Lynwood, California.
Allen J. Schaben | Los Angeles Times | Getty Images

Materials stocks have lagged the broader market this year, but one Wall Street firm thinks there are reasons for the sector to outperform.

Jefferies' research analysts upgraded the sector to overweight from underweight and shared top stock ideas in two notes to clients Monday. They rest their outperform rating on high commodity prices, a weaker dollar, and stronger overseas growth.

"We are moving Materials to an Overweight from underweight as commodity prices are poised to continue to move higher, especially copper accord to Chris LaFemina (JEF's Metal & Mining analyst), and a continued weaker dollar boosts the group," wrote Jefferies strategist Steven DeSanctis.

The sector has underperformed the S&P 500 this year, up 8.68 percent versus the market's 9.15 percent gain as of 1:53 p.m. ET Tuesday. Still, select mining and metals companies, especially those based in copper and gold, are enjoying notable growth.

"With our changes to sector allocation today, upping Materials to Overweight and nudging down Discretionary to Market Weight, we decided to look for Buy rated names from these two groups that fit some of our themes," wrote DeSanctis. "[These] stocks need to be in a growth index, have higher than 25% foreign sales exposure, and trade more than $5 million per day on average."

Here are five of the 11 Materials stocks Jefferies research recommended that investors buy.