Here we are in the final hours of the last trading day of the year. All I can think right now is, “Who woulda thunk?” I know I’m being a little funny but seriously this year was a year full of the unthinkable. Don’t even focus on Brexit or Trump or my Cubs finally winning that elusive World Series, instead look at the stocks and sectors of the market that fared the best. Here I’m going to check out the top sectors of the market in 2016 and some of the hottest stocks from the year that was. Then we’re going to look at other stocks in those same sectors that may keep the momentum going into 2017.

Among the top performing sectors of the year were Basic Materials, Industrial Goods and Utilities. That’s typically not the sectors you’d think would be leading the market when you think high beta moves. It’s part of the reason 2016 was such an interesting transition year. The big winners in these sectors really outpaced the rest of the market. Some of them are still in great position to continue the run next year.

Basic Materials: AK Steel ) +365.6%

AK Steel Corporation, produces flat-rolled carbon, stainless and electrical steel, and tubular products in the United States and internationally.The company is a Zacks Rank #2 (Buy) right now, mostly because of some very aggressive earnings estimate revisions over the last 30 days. Six analysts have increased their earnings estimates for next year, while four have done so for the current year. The bullish sentiment has pushed up our Zacks Consensus Estimate from 54 cents to $1 even for next year.

While the earnings story may be bullish for AKS, the technical picture is begging for caution. After trending well above the 20-day moving average since late October. Shares have finally dipped below it. At the same time the Commodity Channel Index (CCI) has gone from overbought above 100 down through the zero line giving a fresh “Sell” signal. I’d be cautious and wait for the CCI to cross down below -100 then back above through the zero line again before I initiated a new position. The favorable Zacks Rank definitely makes this a stock to watch in the short-term.

Industrial Goods: Cummins (CMI Quick QuoteCMI - Free Report) ) +53.4%

Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, and engine-related component products. It operates through four segments: Engine, Distribution, Components, and Power Generation. Cummins is coming in at a Zacks Rank #3 (Hold) right now, although it does sport a VGM Composite Score of A. Analyst opinion has been mixed in the long term as there has been little agreement in the earnings estimate revisions. For example, this quarter’s estimates have seen five analysts increase their estimates while two have dropped their numbers. Next quarter shows two dropping their numbers and a single analyst increasing. The trend continues to be blurry as you look out to the current year and next year.  

Cummins chart has developed a nice little pattern here after a retrace down from the recent highs near $147. The stock has dropped a few pounds down here in the mid-$130s, providing us with a more favorable entry point. The recent December swing low of $135.18 could be a smart level to initiate a position as it lies just above mid-November support.

Utilities: Centerpoint Energy (CNP Quick QuoteCNP - Free Report) +34.9%

CenterPoint Energy, Inc. operates as a public utility holding company in the United States. The company’s Electric Transmission & Distribution segment offers electric transmission and distribution services to retail electric providers, municipalities, electric cooperatives, and other distribution companies. As of December 31, 2015, this segment owned 28,474 pole miles of overhead distribution lines and 3,723 circuit miles of overhead transmission lines; 23,120 circuit miles of underground distribution lines and 26 circuit miles of underground transmission lines; and 232 substations with a capacity of 58,674 megavolt amperes.

CenterPoint is currently a Zacks Rank #2 (Buy) right now. A big reason for the favorable rank is three analysts increasing their numbers for the current year and next year. The bullish attitude has pushed up our Zacks Consensus Estimate from $1.15 to $1.18 for the current year while increasing next year’s number from $1.22 to $1.26. Surely this is a modest increase but the agreement and the magnitude are enough to warrant the Zacks Rank.

Slow and steady wins the race when you’re talking about Utility stocks and this one fits the bill. Since bottoming out near $22 in late October, shares have steadily increased to near $25. The 20-day moving average has provided support all along the way and now the stock threatens a breakout to new highs. A pattern I’ve used very successfully this year is also developing. That’s the CCI coming down from overbought to the zero line then bouncing. That bounce occurred a couple of days ago and could lay the foundation for a quick swing to profits here.

Bottom Line

The big winners of last year may not lead us throughout 2017 but it can’t hurt to understand which sectors of the market fared the best. Looking to 2017 I expect to see rates tick up along with inflation. That should be a tailwind for the Basic Materials and Industrial Sector this year. However, a rising rate environment would put stress on Utilities. If I was looking at 2016 as an indication of what’s to come, I think I’d feel more comfortable in the first two sectors and the first two stocks mentioned.

Zacks' Top 10 Stocks for 2017

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?

Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>