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Stock Screen: Best & Worst Performing Industries – March 25, 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 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. Overall, the Value Line (Arithmetic) Average has fallen 1.6% for the period under review, as the market has dealt with a variety of unsettling developments, including ongoing strife in the Middle East and North Africa, natural and nuclear disasters in Japan, and continuing signs of weakness in the long-depressed U.S. housing market. Not surprisingly, in view of the rise in energy prices of late, a number of the industries on our best performing list have ties to this part of the economy. The Oilfield Services & Equipment industry, for instance, leads the way with a gain of nearly 9.0% over the past six weeks. At the other end of the spectrum, the influence of events in Japan is evident in the presence of the Foreign Electronics industry, which has suffered a drop of nearly 8.0%.
This week, in looking for some individual stock selections that might appeal to investors, we put an added focus on 3- to 5-year price appreciation potential. Not surprisingly, the current group of industries on our best performing list doesn’t score particularly well in this regard, as the positive price momentum necessary to secure one of these spots tends to cut into the long-term upside of a stock. To wit, the median appreciation for the equities in this week’s top seven industries stands at about 40%, versus 55% for the broader Value Line universe.
Incidentally, the industries found on the worst/best performing list will likely offer a greater selection of stocks with above-average appreciation to 2014-2016. However, many investors, particularly those schooled in the Wall Street adage about not trying to catch a falling knife, likely won’t feel comfortable venturing into these out-of-favor sectors. Meanwhile, with a little leg work, patient investors can still use the best-performing roster to find equities that have displayed positive recent price momentum that still offer good share-price appreciation potential through the middle part of the decade.
The Oilfield Services & Equipment Industry, for instance, offers up a number of worthwhile selections, including Diamond Offshore (DO). From an earnings perspective, 2011 might be a little slow, but helped along by rising energy demand, we expect profit growth to pick up in subsequent years, allowing share net to surpass the previous 2008 peak by mid-decade. In the meantime, including special dividends, the stock offers a healthy stream of current income, with a yield in excess of 3.5%.
Stepping away from energy-related issues, investors may find Hillenbrand, Inc. (HI) to be of interest. Sales and earnings should climb at a good rate in 2011, as the maker of caskets and other funeral-related items benefits from a recent acquisition. The progress should continue in the years beyond, likely fueled by additional acquisitions and geographic expansion.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.