Like animals in nature, stocks tend to move in groups. The company a stock keeps can help us determine which industry groups are leading the market. The majority of past stock market winners were in top industry groups before they went on major runs.

How can we identify which industries are leading the market? Fortunately for investors, our Zacks Industry Rank makes the process simple. Zacks classifies all stocks into one of approximately 250 industry groups based on the Zacks Rank of the individual stocks. The average Zacks Rank is calculated for every industry group each trading day.

We put the Zacks Industry Rank to the test and compared how the top half (industries with the best average Zacks Rank) and the bottom half (industries with the worst average Zacks Rank) fared against the S&P 500. This study was conducted over the ten-year period from 2008-2017.

Image Source: Zacks Investment Research

Over this timeframe, using a one-week rebalance, the top half beat the bottom half by a factor of more than 2 to 1. Clearly, investing in stocks contained within the top industry groups can give investors a leg up on the market.

Let’s take a look at a current example. The Zacks Agriculture – Operations industry group is ranked in the top 35% of all Zacks Ranked Industries. This means that more stocks within this industry are experiencing positive earnings estimate revisions, which is at the heart of the Zacks Rank and is the most powerful force impacting stock prices. Below we can see the outperformance of this industry group (green line, +19.5%) versus the S&P 500 (black dotted line, -7.13%) year-to-date.

Image Source: Zacks Investment Research

Quantitative research studies have shown that approximately half of a stock’s future price appreciation is due to its industry grouping. By investing in stocks within the best groups, we can provide a constant ‘tailwind’ to our investing success. Below we will analyze an individual stock within this top group.

Archer Daniels Midland Co. (ADM Quick QuoteADM - Free Report)

Archer Daniels Midland acquires, processes, and transports agricultural commodities and related products globally. The company procures, cleans, and stores raw materials such as oilseeds, corn, wheat, milo, and barley. ADM also offers futures commission merchant and commodity brokerage services. Archer Daniels Midland was founded in 1902 and is based in Chicago, IL.

A Zacks Rank #1 (Strong Buy) stock, ADM has strung together a noteworthy history of earnings surprises as it has surpassed estimates in each of the past ten quarters. The agricultural company most recently reported Q4 EPS of $1.50, a +10.29% surprise over the $1.36 consensus estimate. ADM has delivered a +21.89% average earnings surprise over the past four quarters, aiding the stock’s 48% return in the past year.