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 the Selection & Opinion section. The roughly 1,700 stocks in the Value Line universe are currently divided among about 100 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.
The time period under review in this week’s list of best- and worst-performing industries was a grueling period for equity investors, with the Value Line Arithmetic Index declining 7.5%. For the six weeks ended June 5, 2012, only seven industries in the Value Line universe were able to generate positive total returns. By comparison, more than one-third of the industries we follow suffered double-digit declines. The damage was particularly severe among Maritime, Coal, and Steel stocks, which fell 28%, 21%, and 19%, respectively.
Biotechnology was once again at the head of the class, though its six-week advance was a rather paltry 3.1%. Helped along by acquisition activity earlier this spring, the industry has made frequent appearances among our top seven in recent months. Of late, its lofty standing has gotten an added boost from Vertex Pharmaceuticals (VRTX) stock, which has soared more than 50% since early May when the company revealed that its new cystic fibrosis drug, Kalydeco was producing positive results in an ongoing Phase II study.
Beyond the biotechs, utilities dominate the best-performing list, with the Electric Utility-West, Water Utility, Electric Utility-East, Natural Gas Utility, and Electric Utility-Central all managing to stay in the black (just barely) over the past six weeks. Investors no doubt find the stable, predictable nature of these businesses comforting in a period of rising uncertainty about the global economy. Geography likely adds to the appeal at the moment, as the economic and financial woes of Europe and slowing growth in once red-hot emerging markets, such as China, figure to have little direct impact on these companies.
For investors seeking to shift more of their holdings into low-volatility, good-income equities, utilities should be near the top of their shopping lists. And they should have no shortage of options from which to choose. Our coverage of the five utility groups in this week’s best performing list includes nearly 70 stocks. One of the many that figures to be worthy of further consideration is South Jersey Industries (SJI), which provides natural gas to almost 350,00 customers in the Garden State. The stock’s dividend yield of 3.3% is nothing special by utility standards, but it is still about 80 basis points higher than the Value Line median for dividend-paying equities. Moreover, we look for solid earnings growth to keep the payout rising at a high single-digit clip each year through mid-decade, which ought to comfortably exceed the rate of inflation over that period. SJI shares also possess many other attributes that will likely appeal to income-oriented investors, including a high mark for Price Stability and an above-average grade for Financial Strength.
Meanwhile, the only non-utility group, other than biotech, in positive territory over the past six weeks is Precious Metals. Amid the financial turmoil in Europe, and concerns about its ramifications for the broader global economy, gold’s allure as a safe haven is likely helping to underpin support for these stocks.
Still, investors in this industry are probably in no mood to celebrate yet. Even with the recent positive shift in investor sentiment, most of the Precious Metals equities we follow are still showing double-digit losses for the year. In fact, only Toronto-based gold producer Agnico-Eagle Mines (AEM) can boast of a positive return for the year to date. Even in this case, AEM shares are trading well below their 52-week high. The stock is still recovering from the battering it took last fall after instability in the rock at the company’s Goldex mine caused it to suspend operations at the site and take a nearly $300 million charge for asset write downs and closing costs.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.