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Stock Screen: Best & Worst Performing Industries - December 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).
The equity markets lacked much direction during the period under review in our latest rankings of best and work performing industries. Overall, the Value Line Arithmetic Average increased 1.6% for the six weeks ending November 4th, and just a slight majority of the industries we follow finished in the black. Building Materials set the pace, rising 10.0%, while Wireless Networking (up 7.4%) just edged out Telecom Equipment (7.3%) for the second spot. Incidentally, investors had little enthusiasm for the Telecom Services group, which finished in the bottom seven, after dropping 6.5% during the period.
In looking for investment ideas among the best-performing industries, we are focusing our attention on two Wireless Networking stocks. The biggest contributor to the group’s presence in our top seven is Research In Motion (RIMM) stock, which has nearly doubled in price since hitting a multi-year low of roughly $6 a share in late September. The recent surge, though undoubtedly welcome, will be only modest comfort to long-time shareholders, who have seen the share price plummet from a high of $137 in 2007.
Ontario-based Research In Motion is best known for its Blackberry smartphone devices. The popularity of these phones, propelled the company (and its stock) to stratospheric heights last decade, but its fortunes have taken a decided turn for the worse since then, as the Blackberry lost ground to Apple’s (AAPL) iPhone and competing smartphones based on Google’s (GOOG) Android operating system. In fact, for fiscal 2012, which ends March 2, 2013, we look for revenues at Research In Motion to decline nearly 40%, to $11.2 billion, while the bottom line figure swings from a profit of $4.20 a share in fiscal 2011 to a loss of $1.20 (roughly $630 million) this year.
The red ink should recede a bit in fiscal 2013, to $0.50 a share, though even this modestly favorable forecast is probably contingent on the company being able to maintain its market share, a scenario that carries a good deal of uncertainty in the current competitive environment. As a result, the stock, which carries a comparatively low Price Stability score of 20 (out of 100), is likely to continue to exhibit considerable volatility in the months ahead. In particular, investors will undoubtedly be closely scrutinizing the upcoming introduction of the Blackberry 10 operating system. This new platform has been postponed numerous times in the past year, but is now scheduled to debut in late January.
Meanwhile, American Tower Corp. (AMT) played a limited role in the Wireless Networking industry’s recent advance to the upper reaches of our price-performance rankings. The stock, though, has been a strong performer throughout much of 2012, and it figures to have broader investment appeal than RIMM shares, particularly with investors looking to avoid wide price swings.
American Tower is the largest independent operator of wireless telecom and broadcast towers. It has made impressive strides over the past decade and looks to be well on its way to its best year yet in 2012. With service providers seeking to expand the capacity of their networks, the company is enjoying a period of strong global leasing momentum, which should help to propel revenues 17% higher this year. Earnings ought to climb at an even healthier clip, rising 67%, to $1.65 a share. The rate of advance will likely moderate on both the top and bottom lines, though we think there is still room for considerable growth ahead. Share net, in fact, figures to increase 25%-30% next year (to $1.65) and continue to rise at a mid-teens annual clip to 2015-2017.
Meanwhile, the company, which recently transitioned to a real estate investment trust, paid its first quarterly dividend early this year. This equity now offers a respectable yield (1.5%), albeit not quite on par with the Value Line median for dividend-paying stocks (2.3%). Moreover, American Tower has increased the cash distribution slightly with each subsequent payout, and a similar trend figures to hold over the next several years, in our view. In fact, management is targeting a five-year dividend growth rate of roughly 20%. We think an expansion in the company’s earnings power in the years ahead will support such a scenario, while also underpinning respectable price appreciation. On this basis, AMT shares might be of interest to income-oriented investors seeking worthwhile total returns to 2015-2017. Too, the stock, though only carrying an Average (3) rank for Safety, gets high marks for Price Stability (90 out of 100).
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.