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Zacks Industry Rank Analysis

Industry Rank Analysis 5-5-10

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 are a large number of firms.

Looking Sharp

There are two fairly large and closely related industries that appear very attractive this week. The first is Textiles and Apparel. It is a fairly large industry with 21 firms, even if many of the firms are rather small. However, of those 21 firms, eight of them hold the coveted Zacks #1 Rank, (Strong Buy), and another 11 hold a Zacks #2 Rank (Buy).

Since only the most attractive 5% of all firms are awarded a Zacks #1 Rank, and only the next 15% get a #2 rank, having 38% of the firms in the industry with a #1, and an additional 52% with #2 ranks is enough to sit up and take note. Overall, the industry is in fourth place among the 255 industries we rank, with an average score of 1.76 versus 2.00 last week. That was enough to improve their placement by one spot.

Well, it your clothes are going to look sharp, then your feet should too (or at least that’s what my daughter tells me, personally I really don’t care about nice clothes or shoes, much to her dismay). The Shoe and Related industry is also relatively large with 14 firms, of which six or 42.8% hold #1 ranks while an additional four or 29% have #2 ranks. The industry was right on the heels of the Apparel industry in fifth place, an improvement of 12 slots since last week as its average score moved to 1.86 from 2.21.

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 small end of mid-cap at just under $3.5 billion, down to very small caps below $150 million, as well as a wide range of valuations based on both this year’s and next year’s estimated earnings.

The consumer seems to be coming back, and after two years of frugality, shopping in the closet just does not seem to be cutting it any more. Retail sales have been robust of late, and that is showing up in the demand for things the retailers sell.

The ISM manufacturing report highlighted the Apparel industry (more broadly defined than we do here) as the one which was showing the most improvement in both production and new orders. Thus there are clearly some economic fundamentals that are driving the better ranks for these firms. Buy these stocks and perhaps you will be in a position to show some sartorial splendor.

Company Ticker Market Cap ($ mil) P/E Using Curr FY Est P/E Using Next FY Est % Change Curr FY Est - 4 wk % Change Next FY Est - 4 wk Current Price
Gildan Actvwear GIL $3,482 19.74 16.3 1.63% 2.96% $28.76
Phillips Van He PVH $3,260 17.8 14.48 3.24% 2.62% $62.53
Jones Apparel JNY $1,889 13.71 11.97 17.58% 15.50% $21.66
Deckers Outdoor DECK $1,776 13.85 12.59 5.26% 3.97% $137.94
Skechers Usa-A SKX $1,728 11.73 10.64 21.14% 18.69% $37.08
Under Armour-A UA $1,704 31.03 26.61 4.66% 5.52% $33.87
Wolverine World WWW $1,531 15.11 13.74 4.53% 4.50% $30.75
Iconix Brand Gp ICON $1,263 12.67 11.35 7.51% 9.84% $17.66
Brown Shoe Co BWS $803 20.71 16.97 23.50% 19.78% $18.50
Quiksilver Inc ZQK $688 47.73 20.62 0.00% 0.00% $5.31
Volcom Inc VLCM $580 22.84 20.22 14.88% 10.00% $23.80
Maidenform Brnd MFB $556 14.78 13.1 0.00% 0.00% $23.06
G-Iii Apparel GIII $530 13.01 11.57 0.00% 0.00% $28.03
Lacrosse Footwr BOOT $120 15.16 15.73 23.50% 10.19% $18.72

Sector This Week's Zacks Rank Week ago Zacks Rank FY10 Revisions Ratio FY10 Estimates Revised Up FY10 Estimates Revised Down FY11 Revisions Ratio
Auto-Tires-Trucks 2.5 2.7 10.5 168 16 7.11
Conglomerates 2.56 2.44 22.5 90 4 20.75
Retail-Wholesale 2.67 2.67 5.37 923 172 5.56
Consumer Discretionary 2.73 2.81 3.76 670 178 3.88
Computer and Technology 2.8 2.81 2.95 1598 541 3.03
Basic Materials 2.81 2.88 1.62 397 245 2.28
Industrial Products 2.83 2.92 2.59 415 160 4.22
Transportation 2.92 2.8 2.44 436 179 2.84
Aerospace 2.95 2.87 1.79 120 67 6.81
Consumer Staples 2.99 2.98 2.01 227 113 2.1
Business Services 3.08 3.11 1.41 249 177 1.88
Construction 3.11 3.17 2.04 173 85 2.1
Medical 3.12 3.12 1.2 806 670 1.08
Oils-Energy 3.14 3.16 1.1 806 736 1.08
Finance 3.15 3.09 1.31 1574 1202 1.27
Utilities 3.17 3.18 0.87 191 219 0.75

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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