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 ranked 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. Overall, stock prices have charted an erratic, but generally upward path in recent weeks. The trailing six-week performance of the Value Line Arithmetic Index (as of July 19th) stood at +3.1%.
From a sector perspective, Consumer Cyclicals continue to put in a strong showing, taking four of the seven spots on our best performing list. This week’s worst performers, on the other hand, are a more diverse lot, with five different sectors represented: Technology, Industrial, Financial, Consumer-Cyclical, and Telecommunications.
Overall, there tends to be a fair amount of fluidity with the best and worst performing lists, including instances where an industry makes a fairly quick transition from the best to the worst or vice versa. As such, some investors will no doubt peruse the worst-performing list for out-of-favor industries that may yield bargain stocks set to return to the market’s good graces. This week we can see evidence of both the risks and rewards of such a strategy.
For example, this week’s top performer, the Shoe industry, which jumped 17.5% in the six weeks ending July 17th, was a mainstay of the worst-performing list during the first month or so of 2011. Its nearest rival, Trucking has made an more rapid climb from the outhouse to the penthouse. It was one of the worst performers as recently as early June, but in our latest rankings, it clocks in with a healthy gain of 13.5%.
At the other end of the spectrum, we find several names that have been making fairly regular appearances on the worst performing list for an extended period of time. In particular, the market’s lack of enthusiasm for Maritime, Newspaper, and Power stocks dates back much further than the six-week time frame of our weekly Industry Price Performance list. Periodically, we produce a list of the three-, six-, and 12-month price performances for all 98 ranked industries in our coverage. In the latest such rankings, published on June 10th, these three groups were among the 20 worst performing industries over the preceding six months. Although there is certainly recovery potential among some of the stocks that have contributed to these dismal performances, we think there are also legitimate concerns that the industry-specific challenges facing each of these groups could endure for some time.
Of this week’s worst performing industries, we are more comfortable with the long-term prospects for Semiconductor and Semiconductor Equipment companies. These are hardly down and out industries—both ranked in the top 20 of the aforementioned six-month rankings—but investors may find the recent dip in market support provides a more attractive entry point into some of the equities.
Among semiconductor companies, the three biggest names Intel (INTC - Free Intel Stock Report), Texas Instruments (TXN), and Taiwan Semiconductor (TSM) all appear worthy of consideration by investors. In our view, Intel stock probably holds a slight edge at the moment. It currently gets our top rank (1) for both Timeliness and Safety. Also, this equity’s dividend yield is about twice that of the Value Line median for dividend-paying stocks, and we expect the payout to climb at a low double-digit rate over the next 3 to 5 years. These favorable investment attributes are underpinned by an encouraging operating outlook for the California-based maker of integrated circuits. After a recession-related slump, earnings rebounded to an all-time high in 2010, and we think growth on the order of 12% is likely in the current year.
Moving over to the Semiconductor-Equipment space, these companies (and their stocks), not surprisingly, tend to being influenced by many of the same factors as the Semiconductor designers and manufacturers. Most of these businesses, though, are much smaller than the three we cited above, and their stocks typically don’t offer much in the way of current income, while exposing shareholders to higher levels of share-price volatility. ATMI, Inc. (ATMI) falls into this category, but its shares could still be a rewarding holding for patient investors focused on three- to five-year price appreciation. The company’s products and systems play a role in converting bare silicon wafers into fully functioning ones. Its revenues should climb at a low-double-digit clip this year and out to 2014-2016, with earnings ramping up at a slightly faster clip.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.