Among the features found in each issue of Value Line’s Selection & Opinion is a list of the seven best and worst performing industries over the past six weeks. November had been a rough month for stocks until the final four days, but the gains racked up in October allowed many industries to still show improvement in the period ended November 21st. To secure a spot in the latest top seven, an industry needed to advance by at least 7%. The Value Line (Arithmetic) Average, by comparison, was up 1.0% for November through the 21st, while the last seven groups across the finish line all fell by at least 7%. Overall, cyclical industries were in abundance at the top of our rankings, suggesting that market participants are still more optimistic about the prospects for the U.S. economy than was the case in early October at the start of our latest six-week marking period. (Notably, the recent news of the downward revision in September-quarter GDP growth, from 2.5% to 2.0%, didn’t reach investors until after the current best- and worst-performing lists were compiled.) Building-related industries, Building Materials (12.4%), Homebuilding (12.0%), and Retail Building Supply (10.5%), swept the top three spots in our latest rankings.

The latest rankings also suggest that investors have been scouring the bargain bins in search of a deal. In the latest six-week period, the market has generally favored industries that have been heavily discounted during 2011, as a whole. In fact, despite the strong gains registered since early October, five of the seven industries on this week’s top-performing list are deeply in the red on a year-to-date basis. By comparison, most of the leading benchmarks for the broader U.S. equity market are trading within a few percentage points of breakeven.

One of the top performers that doesn’t necessarily conform to this trend is the Oil/Gas Distribution group, which registered a gain of nearly 10%, good for fourth place in this week’s rankings. Investors in this group will likely recall 2011 fondly, as most of the stocks found here have racked up strong double-digit gains. Its presence on this week’s list appears to be at least partially acquisition related. Specifically, shares of El Paso Corp. (EP) have shot up more than 25% since October 16th, when the natural-gas provider reached an agreement to be acquired by Kinder Morgan, Inc.

Meanwhile, many of the top-performing equities in this week’s top-performing industries will appeal only to investors with a high tolerance for risk. For instance, shares of Media General (MEG), which owns a portfolio of newspaper and television-station assets, have nearly tripled since hitting a 52-week low in early October. Dramatic swings are the norm for this riskier equity (Safety: 5, Lowest), which is still trading at just a fraction of its pre-recession price (roughly $3 at the moment versus $40-plus as recently as 2007). This volatility will likely continue, as Media General’s debt levels overwhelm its market capitalization (about $665 million to $80 million), and we expect the challenging operating environment facing newspaper operator’s to keep the company in red ink well into next year.   

Headwaters Inc. (HW) stock, a key factor behind the building products industry’s presence among this week’s top performers, has a similar profile. The provider of light-building products and heavy-construction materials had record earnings of $2.53 a share in 2007, when its shares traded as high as $25. The company, though, has failed to turn a profit in its last three fiscal years, and its stock price has been bouncing around the single digits since 2008. Results for final three months of fiscal 2011, though, helped to lift investors’ spirits, as Headwaters earned a modest profit ($0.14 a share) for its September quarter. Still, the road ahead figures to remain bumpy, with the dreary outlook for the housing market suggesting the company will be back in the red again in fiscal 2012.

Meanwhile, those seeking investment ideas, but not excessive volatility among the top-performing industries may wish to consider the shares of Home Depot (HD - Free Home Depot Stock Report). The world’s largest home-improvement retailer recently reported solid results for its October quarter. Same-store sales rose a respectable 4.2%, and earnings, though a bit shy of our estimate, managed to climb 13% year over year, to $0.60 a share. Meanwhile, the company announced a healthy 16% increase in its quarterly payout, to $0.29, which translates into a dividend yield of roughly 3%, comfortably above the current Value Line median (2.4%). Too, Home Depot indicated that it would be stepping up its efforts to return cash shareholders, both in the form of dividends and share repurchases. Overall, HD shares, which carry our top rank for Safety (1), should appeal most to conservative investors. 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.