Screen Of The Week 11/23/2010: 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 I’ve done some testing over the past and found 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 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 Rank outperform those with the worst 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 for so many stocks to be trading near their highs.

First, I numerically rank the sectors with the best Zacks Rank. 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. 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. Auto-Tires-Trucks
1st for the Zacks Rank & 2nd for the group highs = 3 (tied for 1st)

2. Conglomerates
2nd for the Zacks Rank & 1st for the group highs = 3 (tied for 1st)

3. Basic Materials
3rd for the Zacks Rank & 7th for the group highs = 10 (2nd)

4. Retail-Wholesale
4th for the Zacks Rank & 9th for the group highs = 13 (tied for 3rd)

5. Utilities
10th for the Zacks Rank & 3rd for the group highs = 13 (tied for 3rd)

Here are 5 stocks, one from each of the top 5 Sectors, (for Monday, 11/22/10):
• CTB - Cooper Tire & Rubber Co. -- Autos-Tires-Trucks

• CSL - Carlisle Companies Inc. -- Conglomerates

• BG - Bunge Ltd.-- Basic Materials

• CBRL - Cracker Barrel Old Country Store, Inc.-- Retail-Wholesale

• UNS – UniSource Energy Corp. -- Utilities

All of these stocks are in the top Sectors as we've defined them, and they are all on the move.
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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

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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.