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Stock Screen: Best & Worst Performing Industries - October 27, 2010
Among the many features found in each week’s issue 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 divided up among 99 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. For instance, a rising tide—the Value Line Geometric Average has risen 9.1% for the period under review—seems to be lifting nearly all boats of late. All but two of the industries in our coverage have managed to eke out at least some modest share-price gains since early September. And to secure a spot in our top seven, a group had to advance by at least 14.0%. Currently, this select seven has a strong technology flavor, as represented by investors’ recent appetite for stocks in the Computers/Peripherals, Precision Instrument, Semiconductor Equipment, and Electronics sectors. These, and the other industries that make up the current best performers, tend to be heavily seeded with high-beta stocks, not a surprising development, given the recent strength in the market.
Meanwhile, a look at the worst performers shows that the bullishness toward equities of late doesn’t extend to the housing market. The prospects of at least three of the seven industries on this list—Homebuilding, Retail Building Supply, and Building Materials—are closely tied to developments in this key sector of the economy. Too, concerns about mortgages are likely contributing to the lackluster support for the Bank Industry, which also makes an appearance on our worst performing list.
Readers can also use our Best/Worst list as a starting point for identifying individual stocks that may be worthy of further investigation. For instance, among the stocks driving the Semiconductor Equipment industry’s lofty status in our Price Performance standings are Amkor Technology (AMKR) and Photronics (PLAB). The recession was quite difficult for most of the companies in this cyclical group, but profits have rebounded nicely in 2010. At Amkor, rising demand for the company’s chip packaging services, and related improvements in capacity utilization, are driving the earnings reversal. Photronics, meanwhile, has been getting a boost from higher integrated circuit volume. Investors will also want to note that these two stocks, based on their respective betas and Price Stability ranks, are among the more volatile in the semiconductor-equipment space.
Any review of this industry should also include Applied Materials (AMAT), too. The company produces semiconductor wafer fabrication equipment, and its market capitalization is nearly equal to the rest of the industry combined. Although its stock price performance of late has been comparatively modest relative to its peers, the overall picture is comparatively bright here, as well. Higher volumes and recent cost-cutting measures have helped the company to roar back to profitability in 2010, and we expect the top- and bottom-line momentum to continue into next year.
Despite the industry’s strong performance of late and favorable near-term prospects, this industry probably isn’t suitable for all investors. In particular, those with a conservative bent should proceed with caution, due to the wide price swings symptomatic of many of these equities. As recently as mid-September, in fact, this same collection of stocks showed up in our presentation as one of the seven worst performing industries.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.