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Industry Rank Analysis 09-29-10

They say that there is nothing certain in life except for death and taxes, and even the tax part is questionable. This year is pretty unique in this regard since the inheritance -- or as some like to call it, the “death tax” -- is zero, but is scheduled to revert back to 2000 levels next year. That is simply bizarre public policy, and it will be interesting to see how many billionaires bit the dust over the next few years.

There is, however, no known “death haven” like the Cayman Islands are for taxes, nor can there be a year-long moratorium on death. Since investors hate uncertainty, why not invest in the one thing that is indeed certain?

The Zacks industry classifications are very fine, with 256 different industries tracked. It is not particularly noteworthy if a single small industry shows up doing well, a single firm with good news can propel a one or two firm industry to the top (or bottom) of the charts.

It is interesting when you see a cluster of similar industries at the top of the list. The same holds true for the bottom of the list.

The Funeral Services industry is a pretty small one, with just six firms in it, and none of them are exactly megacaps. Still, it is big enough for most readers to invest in. Normally when I decide to highlight a small industry (by number of firms) I try to find a bunch of closely related industries that are also showing up well.

Unfortunately, none really exist for Funeral Services. (Looking at the list, I also noted that the Waste Removal Industry was also looking good, but figured that it would be too crass to combine them in a single article.)

The Funeral industry is currently in 13th place among the 256 industries we track, unchanged from last week with an average Zacks rank of 2.17. Of the six firms in the industry, five have Zacks #2 Ranks, or Buy, and there is only one with a Zacks #3 Rank, or Hold.

The table below shows the Funeral stocks that hold the vaunted Zacks #2 Rank. The valuations on these stocks are reasonable, but not particularly eye-popping. Most do pay solid dividends as well. For an industry where the demand will always exist regardless of the state of the economy, they might be worth some further investigation.

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
Service Corp In SCI $2,093 14.93 13.38 0.00% 0.00% $8.48
Hillenbrand Inc HI $1,322 11.93 10.85 0.00% 0.00% $21.23
Matthews Intl-A MATW $1,002 14.89 13.42 0.00% 0.00% $33.64
Stonemor Ptnrs STON $388 16.97 N/A 0.00% 35.71% $25.29
Carriage Svcs-A CSV $84 9.72 9.17 0.00% 0.00% $4.86

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.

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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