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, 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.

I've done some testing over the past and, interestingly, found that often times just getting into an average stock in a strong group will 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.

One of my favorite ways to find the top Sectors is to look at the percentage of stocks trading within 10% of their 52-week highs.

A lot of people like looking at the percentage price change over the last 12 or 24 weeks. That's fine – but I don't think its sensitive enough.

Take the Oil and Energy sector last year for example. Based on its 24-week or 12-week price performance – it was continuously ranked one of the top Sectors even while it was collapsing.

That was because the gains were so large in the first part of the 12- or 24-week period – even a large pullback over a span of many weeks can be lost within the larger run-up that preceded it.

But by checking their position in comparison to their 52-week highs, a simple 10% pullback from their 52-week highs will show up. And if more and more companies within that group are pulling back from their highs by more than 10%, it'll be reflected in that Sector's rating, and, therefore, alert the investor that something systemic might be happening to that group as a whole rather than something that's just stock specific.

As I said at the beginning, since roughly half of a stock's price performance can be directly attributed to the group that it's in, it's important to be able to identify the best Sectors quickly and accurately.

So what are the current top Sectors? Glad you asked.

The top five Sectors based on the percentage of stocks at or within 10% of their 52-week highs are:

1. Utilities - 58.7%
   
2. Conglomerates - 58.5%
   
3. Auto-Tires-Trucks - 50.0%
   
4. Consumer Staples - 44.8%
   
5. Aerospace - 41.2%

To put this into perspective, this is what they were in September:

1. Retail-Wholesale - 32.2%
   
2. Utilities - 30.3%
   
3. Consumer Staples - 29.5%
   
4. Basic Materials - 29.3%
   
5. Finance - 28.6%

Retail-Wholesale, which was number one in September, is now number 9. The number of companies trading within 10% of their 52-week highs in this group has increased (now 36% vs. the previous 32%), but it has been surpassed by other groups.

Consumer Staples also dropped a notch to the fourth spot.

While Utilities on the other hand jumped to number one.

There are also some new sectors that appear on this list, such as Conglomerates, Auto-Tires-Trucks and Aerospace. I especially like to look at the new groups that pop up.

Here are a few stocks from each of those current top sectors (for Tues., 12/8/09):

ENI - Snapshot Report Enersis S.A. - Utilities
CR - Snapshot Report Crane Co. - Conglomerates
GPC - Analyst Report Genuine Parts Co. - Auto-Tires-Trucks
SCI - Snapshot Report Service Corp. International - Consumer Staples
GD - Analyst Report General Dynamics Corp. - Aerospace

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. You can do it. Learn how today.

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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.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: http://www.zacks.com/performance.

Read the full analyst report on GD

Read the full analyst report on CR

Read the full analyst report on GPC

Read the full analyst report on ENI

Read the full analyst report on SCI