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Zacks Industry Rank Analysis

Industry Rank Analysis 4-28-10

In evaluating the Zacks Industry Ranks, you want to see two things: a good overall score (low, meaning more Zacks #1 and #2 Ranked stocks than #4 or #5 Ranked stocks) and some improvement the relative position from the prior week. It is also helpful to understand exactly what the Zacks Industry Rank is.

The Zacks Industry Rank is the un-weighted average of the individual Zacks ranks of the firms in that industry. It does not matter if the stock is the 800 lb gorilla that dominates the industry or some very small niche player in the industry -- they have the same influence on the industry rank.

Also, that means that the bigger the industry in terms of number of firms, the less influence any given company has on the industry rank. It also implies that small industries, with just two or three firms, should be the ones found at either the top or the bottom of the list. After all, if there are only two firms in the industry, it is relatively easy to get a Zacks rank of 2.00 (i.e. one with a Zacks Rank of #1 and the other with a #3). Right now, that industry rank would be tied for 6th place among the 255 industries tracked.

The same obviously goes for the bottom of the list as well. If there are 50 firms in the industry, and it ends up at one of the extremes, that means there has to be something pretty significant going on. Thus, I do not always focus on the very highest rated industries, but on the highest rated ones in which there re a large number of firms.

Semiconductors Worth Repeating

Normally I don’t like to highlight industries that I have highlighted recently, however the Semiconductor-related industries continue to dominate the top spots in the industry rank list. While with 255 different industries tracked we might have cut the groupings a little fine, so several of the “industries” only have two or three firms in them, the semiconductor and related semiconductor equipment industries comprise 9 of the top 16 industries tracked. Collectively these industries total 70 different firms.

Ten of the industries are tied for 6th place, with average Zacks ranks of 2.00. Out of the 70 firms in these nine industries, there are a total of 15 Zacks #1 Ranked stocks (21.4%) and 18 Zacks #2 Ranked stocks (25.7%). Thus almost half of (47.1%) of all firms are rated Buy or better in these industries.

The Zacks Rank is designed so that the most attractive 5% of all firms are given #1 ranks while those from the 6th through the 20th percentiles are given #2 ranks (with a mirror image for ranks #5 and #4, respectively). It is also noteworthy that not a single stock in any of these industries has a Zacks Rank worse than #3, or Hold.

The first table below shows all the Zacks #1 Ranked firms in these industries, along with their valuations and recent changes in their mean estimates (one of the primary drivers of the Zacks Rank). The companies range from the large end of mid-cap at $9.5 billion down to very small caps below $500 million, as well as a wide range of valuations based on both this year’s and next year’s estimated earnings.

Companies cut back on capital spending last year due to the recession, and a large part of capital spending is related to technology, and thus semiconductors. They are starting to make up for lost time, and in this cycle it appears that business spending on equipment and software is one of the primary locomotives pulling us out of the recession. The companies that make semiconductors, and the firms that make the tools that enable companies to make semiconductors, are among the main beneficiaries of that trend.

Company Ticker Market Cap ($mil) P/E using
Curr FY Est
P/E using
Next FY Est
Curr Fiscal Yr Est - 4 wks
Next Fiscal Yr Est - 4 wks
Current Price
Sandisk Corp SNDK $9,567 12.18 13.21 42.46% 15.87% 41.83
Altera Corp ALTR $7,726 13.15 13.02 23.07% 15.07% 25.73
Microchip Tech MCHP $5,525 18.37 16.20 0.93% 1.04% 29.99
Natl Semicon NSM $3,575 18.03 12.55 0.00% 0.00% 15.04
Aixtron Ag-Adr AIXG $3,471 20.13 19.49 10.15% -0.37% 34.75
Silicon Lab Inc SLAB $2,302 30.53 24.77 0.00% 0.00% 50.10
Vishay Intertec VSH $2,038 12.32 10.92 2.78% 0.40% 10.92
Veeco Instrs-De VECO $1,981 23.10 16.91 3.78% 2.95% 49.21
Intl Rectifier IRF $1,743 46.39 23.94 0.00% 2.87% 24.52
Fairchild Semi FCS $1,470 9.65 9.00 19.35% 21.14% 11.82
Mks Instruments MKSI $1,149 10.39 8.95 24.20% 18.74% 23.20
Tessera Tec Inc TSRA $1,090 22.34 15.23 2.61% -0.11% 21.73
Coherent Inc COHR $903 43.89 30.52 0.61% 1.06% 36.32
Cohu Inc COHU $394 21.75 14.32 57.14% 37.65% 16.75
Ultra Clean Hld UCTT $221 12.52 8.15 24.24% 9.57% 10.27

Sector This Week's Zacks Rank Week ago Zacks Rank FY10 Revisions Ratio FY10 Estimates
FY10 Estimates
FY11 Revisions Ratio
Conglomerates 2.44 2.48 33.50 67 2 21.33
Retail-Wholesale 2.67 2.61 7.49 794 106 7.11
Auto-Tires-Trucks 2.70 2.70 7.29 102 14 6.58
Transportation 2.80 2.88 2.29 336 147 3.60
Computer and Technology 2.81 2.85 3.64 1149 316 3.58
Consumer Discretionary 2.81 2.84 2.76 488 177 3.31
Aerospace 2.87 2.92 1.20 61 51 7.00
Basic Materials 2.88 2.83 1.37 316 230 2.27
Industrial Products 2.92 2.94 2.21 258 117 3.99
Consumer Staples 2.98 3.02 1.67 164 98 2.05
Finance 3.09 3.12 1.19 1176 992 1.27
Business Services 3.11 3.14 1.85 198 107 2.33
Medical 3.12 3.07 1.11 501 453 0.97
Oils-Energy 3.16 3.16 0.89 586 660 1.01
Construction 3.17 3.22 1.91 124 65 1.64
Utilities 3.18 3.21 0.71 135 189 0.60

Click here for the Zacks Industry Rank List:

Dirk van Dijk, CFA is the Chief Equity Strategist for With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

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