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Stock Screen: Best & Worst Performing Industries - June 24, 2011
Among the many features found in each week’s edition of Value Line’s Selection & Opinion service 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 98 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 forms 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. The slump in which equities have been largely mired since early May is certainly reflected in the performance of the Value Line (Arithmetic) Average, which has fallen 5.6% for the period under review (ended June 21st). The difficulty of swimming against this tide is illustrated by the fact that only four of the 98 industries in our coverage are in positive territory over the recent six-week period.
Investors, though, seem to be rallying around consumers in hopes of riding out the recent market turbulence. This trend appears to be behind the presence of the Food Processing, Retail/Wholesale Food, and Beverage groups in this week’s rankings of the seven best-performing industries. In fact, each of these industries has made multiple appearances in the past month, as the broader market has continued to pull back from the post-recession peak reached in late April. The relatively noncyclical nature of these industries is likely enhancing their appeal in an environment marked by heightened concerns about the durability of the current economic recovery and limited evidence of a vigorous rebound in the labor market. Consumers rely on many of these companies to provide relatively basic necessities that they use and need to replenish on a regular basis in good times and bad. Interestingly, the market also seems to be of the mind that people won’t be so quick to cut back on relatively minor indulgences, which has helped to keep Restaurant and Toiletries/Cosmetics issues high on our list of best performers.
The recent earnings report from the nation’s largest supermarket operator only served to boost the market’s recent confidence in the Food Retail/Wholesale industry. Profits at Kroger (KR) have been picking up in recent quarters, but the near 25% year over year, increase in the May interim easily surpassed our expectations for a mid-single digit profit advance. Identical-store sales continued to climb at a good clip —4.6% excluding volatile fuel revenues— and gross margins, which have been pinched in recent years by the company’s aggressive efforts to capture market share, held up reasonably well. Assuming this positive momentum at its stores persists, we suspect support for KR shares will continue to build.
Those looking for investment ideas among the best-performing industries don’t necessarily have to restrict themselves to consumer stocks. Shares of Oil/Gas Distribution companies have also been relative market favorites of late. In fact, this group’s popularity with investors extends back even further than the six-week timeframe of our Best and Worst Performing lists. In our June 10th Issue of Selection & Opinion, it ranked as the tenth best performing industry over a six-month period in our Industry Composite Price Performance category. The extended upward run raises some concerns about how much upside is left in this group. Many of these equities have rather modest price-appreciation potential to 2014-2016. Still, investors with an appetite for income will likely want to take a closer look. More than half of the equities in this sector offer dividend yields that are 100 basis points or more above the current Value Line median of 2.0%. The shares of Enbridge Inc. (ENB) and TransCanada Corp. (TRP), two of the leading pipeline companies in Canada, both fall into this category. (Both stocks trade on the New York Stock Exchange.) Adding to their appeal, both get very high marks for Price Stability (100 and 95, respectively, on a scale of 5 to 100) and have good track records for increasing their payouts each year.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.