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Stock Screen: Best & Worst Performing Industries - March 14, 2011
Among the many features found in each week’s Issue of Value Line’s Selection & Opinion is a list of the seven best and worst performing industries over the past six weeks. These rankings can be found on the inside back cover of Selection & Opinion. The roughly 1,700 stocks in the Value Line universe are currently divvied up among 97 industries. Notably, for the purposes of calculating these results, the performance of each stock is equally weighted to the others in its industry (i.e., irrespective of market capitalization). This data also form the basis for the Relative Strength price charts found on each industry page in the Value Line Investment Survey.
A quick review of the industries on our best/worst performer list can usually provide some insight into the underlying trends driving the broader market. Overall, the market has performed reasonably well of late, with the Value Line (Geometric) Average rising 3.9% for the period under review. To secure a spot in our top seven, a group had to advance by at least 9.0%. All of the worst performers, on the other hand, were in negative territory with losses ranging from 7.7% (for Homebuilding) to 1.9% (Paper/Forest Products).
Oil remains a dominant theme on our best and worst performing lists. With a gain of 16.7% in the past six weeks, the Oilfield Services/Equipment sector now leads the pack, having supplanted the Petroleum (Integrated) industry, which has dipped to number three on our list. At the other end of the spectrum, two industries that stand to be hurt by higher gasoline prices, Automotive and Trucking, can be found among the worst performers.
In looking for some interesting selections among this week’s group of in-favor industries, we have opted to take a look at how this particular collection might appeal to income-oriented investors. With this in mind, the Oil/Gas Distribution and Petroleum (Integrated) industries will likely provide the most abundant hunting ground.
Seven of the eight stocks in the Oil/Gas Distribution group pay dividends, and most of these offer yields in excess of the Value Line median for dividend-paying equities (currently 1.9%). The yield of roughly 4% on Spectra Energy (SE) shares handily exceeds this. The company, which stores and distributes natural gas throughout North America, recently raised its payout by 4%. This represented the first such increase in over two years, but following last year’s strong earnings recovery, which brought the payout ratio down from 85% to a more comfortable 65%, we think increasingly frequent hikes on the order of 5% or more per year are likely through mid-decade.
The Petroleum (Integrated) Industry features roughly half a dozen stocks with dividend yields above the Value Line median (from a group of nearly twenty companies). With a yield just shy of 2.0%, Occidental Petroleum (OXY) doesn’t necessarily stand out on this score, but considering the recent 21% hike in the payout, it is probably worth another look. At present, we look for dividends to increase about 7% per annum over the next several years, roughly in line with earnings, though we think there is even some upside to this. Even with the recent hike, the payout ratio (measured against earnings) should be a very manageable 25%, while some of the other big oil companies distribute over 30% of profits to shareholders.
Meanwhile, income-oriented investors will have to look harder among our other best-performing industries for appealing selections, though such a search can still produce generous dividends. Among the apparel group, for instance, where only about half the companies pay a dividend, you can find V.F. Corp. (VFC). The world’s largest apparel maker aims to pay out about 40% of earnings each year, which, at the current valuation, translates to a yield of about 2.5%. The owner of the Lee, North Face, and numerous other high-profile brands has a strong track record for earnings growth, and we think it is well positioned to build its profit base and increase its dividend in the years ahead.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.