Screen Of The Week 02/08/2011: New Top 5 Sectors

It's that time again. Every few months, I like running this screen to find the new Top Sectors. And since roughly half of a stock's price move can be directly attributed to the group that it's in, it's important to stay on top of this.

By definition, a strong Sector or strong Industry will have more of its companies moving higher than a weak Sector or weak Industry.

If the majority of stocks are going down in an industry, it can't be a strong industry. If more stocks are going up, it is a strong industry.

What's interesting is that just getting into an average stock in a strong group will often outperform the best stocks in a troubled group.

This doesn't mean you can just pick anything and you'll make money. Far from it. But it illustrates how powerful the underlying group is to the success of your stock picking.

There are several ways you can define the best Sectors or Industries.

Today, I'm combining my two favorite ways:

1) I'm ranking the sectors based on the average Zacks Rank.

2) I'm ranking the sectors based on the percentage of stocks trading within 10% of their 52 week highs.

This is the best of two great ways to look at sectors.

Groups with the best Zacks Ranks outperform those with worse Zacks Ranks.

And groups with a higher percentage of stocks trading at or near their 52 week highs show that something positive is happening to the entire group.

First, I numerically rank the sectors with the best Zacks Ranks.

Then I do the same for the sectors with the highest percentage of new highs.

Then I add the scores together from each method to get a composite.

And then lastly, I'll re-sort the total score from lowest to highest to give me the best sectors.

This way I'm getting the best Zacks Ranked groups (those with the highest upward earnings estimate revisions) as well as the groups with the best responsiveness as evidenced by their price performance.

And the top five Sectors based on this scoring method are:
1. Conglomerates
1st for the Zacks Rank & 1st for the group highs = 2 (best total score)

2. Auto-Tires-Trucks
3rd for the Zacks Rank & 3rd for the group highs = 6 (second best)

3. Aerospace
2nd for the Zacks Rank and 5th for the group highs = 7 (third best)

4. Oils and Energy
8th for the Zacks Rank and 4th for the group highs = 12 (fourth best)

5. Utilities
2nd for the Zacks Rank and 10th for the group highs = 12 (tied for 4th)

Here are 5 stocks; one from each of the top 5 Sectors (for Tuesday, 2/8/11):

• RTN - Raytheon Company - Conglomerates
• OSK - Oshkosh Corp. - Auto-Tires-Trucks
• HXL - Hexcel Corp. - Aerospace
• STP - Suntech Power Holdings Co. Ltd. - Oils and Energy
• SWX - Southwest Gas Corp. - Utilities

All of these stocks are in the top Sectors as we've defined them and they are all on the move. Start picking stocks in the best Sectors and Industries on your own today. It's easy to do with the Research Wizard. Start putting the odds of success in your favor. Sign up now for your two week free trial.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

By: Kevin Matras

Article Directory: http://www.articledashboard.com

Kevin Matras is the Research Wizard Product Manager and weekly contributing Editor at Zacks Investment Research who creates and writes the Zacks Commentary Screen of the Week and Know Your Options. For more information, visit www.zacks.com.