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Stock Screen: Best & Worst Performing Industries - September 7, 2012
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 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.
In keeping tabs on the best and worst performing industries, we have seen many occasions where investor sentiment toward a particular group has changed in short order. This week’s rankings provide a number of examples of industries that have gone from the worst-performing list to the best (or vice versa) in rapid fashion. The recent performance of the Precious Metals industry is a rather extreme case. The group took the top spot in this week’s list, advancing just over 20% in the six weeks ending September 4th. Six weeks prior, however, the group was at the bottom of the rankings, having dropped nearly 15% in price between mid June and late July.
As would be expected, the process is reversible. The Pipeline MLP group was an investor favorite early in the summer, but has been left on the sidelines during the market’s rapid rise over the past six weeks. As a result, it now shows up on our worst-performing list, after having lost 1% of its value since July 24th. (By comparison, the Value Line Arithmetic Average has increased 7% over this same stretch.)
With this in mind, this week we will take a closer look at some of the worst-performing industries to see if any of these groups might have the potential for worst-to-first reversals along the lines of the Precious Metals group. Certainly, few investors will be cheering for the return of the three Electric Utilities groups (East, Central, and West) to the top of the industry price performance rankings. These low-Beta equities generally lag behind in a rising market, and only return to prominence when the broader market is faltering.
Still, investors concerned that valuations have become a bit overextended following the recent advance in the stock market may wish to take a closer look at this sector. Price-appreciation potential for these stocks is generally rather modest. Most, though, provide some added downside protection in case of a correction, while also offering attractive dividend yields that make them suitable for income-oriented accounts. For those wishing to take a closer look at the industry, Exelon (EXC) and Pepco Holdings (POM) are two names worthy of consideration. Both stocks have yields and 3- to 5-year price appreciation potential that are a cut above that of the typical electric utility.
Meanwhile, most investors will want to proceed cautiously around the Coal Industry. The group’s presence on this week’s worst-performing list is seemingly attributable to industry-specific challenges that don’t lend themselves to quick resolutions. Most of the coal producers we follow appear likely to post lower earnings in 2012. Sagging demand from the industrial sector is one issue weighing on the group, but the biggest threat to the industry’s long-term prosperity looks to be emergence of natural gas as a viable alternative to coal. A boom in natural gas drilling in the U.S. has caused prices of that commodity to fall precipitously in recent years. Still, despite the challenging fundamentals, more-aggressive investors might find some of the stocks in the coal group worthy of further consideration for their speculative appeal. For instance, Arch Coal (ACI) and Alpha Natural Resources (ANR) are both currently operating in the red, and the losses are likely to extend at least through 2013. Still, we think both of these companies could emerge as buyout targets in an industry that appears ripe for further consolidation.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.