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Stock Screen: Best & Worst Performing Industries - September 9, 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 performers list can usually provide some insight into the underlying trends driving the broader market. Overall, investors have had little appetite for equities since mid-summer, amid worries that the U.S. economy could slip back into recession and that the ongoing troubles involving European sovereign debt are still far from resolved. These concerns are reflected in the performance of the Value Line (Arithmetic) Index, which declined 16.3% in the six weeks ending September 6th.
Not surprisingly, low beta stocks (below 1.00) with high marks for Price Stability have generally had some success resisting the downward pull of the broader market. These attributes are frequently found in the shares of companies operating in noncyclical industries, where demand is comparatively less sensitive to changes in the broader economic environment. Utilities certainly meet these criteria, and two such industries, Natural Gas and Water, hold down spots in this week's list of best performing industries. Investors seeking exposure to equities, but wishing to limit there susceptibility to wide price swings, will find many stocks worthy of consideration in these two groups.
Shares of American Water Works (AWK), which provides water and wastewater services in the U.S. and Canada, are fairly representative of what to expect from the Water Utility industry. The stock gets a high mark for Price Stability (90 out of 100) and is suitable for income-oriented accounts, with a dividend yield (3.1%) roughly 70 basis points above the current Value Line median. The tradeoffs, though, include rather pedestrian earnings-growth prospects and below-average price-appreciation potential to 2014-2016.
Natural-gas utility stocks share many of the same attributes as those from the Water Utility industry. In fact, they are probably even better suited for conservative accounts, with most getting our top mark for Price Stability (100) and featuring yields typically 130 basis points or more above the Value Line median. Shares of AGL Resources (AGL), which provides natural gas to over two million customers in the eastern United States, offer the combination of relatively high income (dividend yield above 4%) and stability (Price Stability: 100) that utility investors seek.
Looking ahead a bit, we would expect to see some changing of the guard, at least in terms of our best performing list, over the next few weeks. The steep declines in equity prices of late stem mostly from, dismal stretch in late July, early August, and thus far in September, which has been the worst start to the month ever. The broader market, while subject to frequent stomach-churning swings, has essentially held its own over the past month. The losses sustained in mid-summer will soon no longer be reflected in the six-week snapshot of the market represented by our weekly industry rankings. As this occurs, some new blood is likely to emerge among our best-performing names. The ascension of the Metal & Mining group to a spot among the best performing groups (albeit with a decline of about 10%) is perhaps one indication that investors are venturing further out on the risk spectrum in search of bigger potential returns.
Metals & Mining stocks racked up strong gains in 2010, but have underperformed the broader market so far this year. The near-term performance of these volatile, commodity-related equities will likely remain skittish, as the market looks for indications that the U.S. economy will avoid a double-dip recession and that European nations will make progress addressing the sovereign-debt issues that continue to plague that region. Over time, though, the likelihood of rising demand for commodities, particularly from emerging markets, such China, India, and Brazil, augurs well for this industry's long-term prospects. Investors seeking to capitalize on such a scenario, and willing to ride out the attendant wide price swings in the interim, can start by investigating some of the bigger names in the group. BHP Billiton (BHP), Rio Tinto (RIO), and Southern Copper (SCCO) all offer good price appreciation potential to 2014-2016.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.