Sectors With Momentum

11/18/2013


With the S&P 1500 Index up 5% over the last three months, 8% over the last six months, and 27% over the last 12 months, investors need not look very far to find price momentum.

All but one of the 10 sector indexes have gained ground in the last three months, and all 10 have delivered at least 1% gains over the last year.

SECTOR PERFORMANCE COMPARISON
Only two of the 10 sectors that make up the S&P 1500 Index — consumer discretionary and industrials — rank among the top four in price gains over the last three, six, and 12 months.
----------------------------- Price Change -----------------------------
S&P 1500 Sector
3
Months
(%)
Rank
6
Months
(%)
Rank
12
Months
(%)
Rank
Consumer Discretionary
5.5
4
11.7
2
42.3
1
Consumer Staples
2.6
7
3.3
8
20.6
5
Energy
5.0
6
7.0
6
17.8
7
Financials
1.6
8
6.4
7
36.2
4
Health Care
5.2
5
10.3
4
39.2
2
Industrials
8.4
1
15.0
1
37.2
3
Materials
6.0
3
9.5
5
24.7
5
Technology
6.3
2
10.6
3
15.6
8
Telecom Services
0.8
9
(4.8)
10
1.8
10
Utilities
(0.9)
10
(1.7)
9
5.6
9
S&P 1500
4.6
8.5
27.1

All else equal, investors should gravitate toward stocks with strong price action, as stocks going up tend to continue going up. But like all investment adages, the advice means nothing without context. So here's the context:

• While the market as a whole enjoys price momentum, industrials and consumer discretionary stand out as the only two sectors among the top four in performance over the last three, six, and 12 months. Investors who prefer stocks with strong price action should consider these sectors.

• The balance between stock performance and valuation, tricky even at the best of times, becomes more precarious when a group of stocks bulls upward. However, neither of the top-performing sectors looks expensive. Consumer-discretionary stocks in the S&P 1500 average Quadrix Value scores of 55, while industrial stocks average 58. The two sectors both average Overall scores of at least 61, higher than most other sectors. For a quick look at average total returns and Quadrix scores for stocks in each sector, visit www.DowTheory.com/Go/Sector2.

• It's one thing to identify a market niche with appeal, and another to actually invest in it. We don't advise purchasing sector mutual funds or loading up on stocks to buy exposure, as even the most attractive sectors contain plenty of stocks best avoided. Instead, subscribers should focus on select stocks, such as the recommended names in the table below.

Four of the consumer-discretionary stocks — Comcast ($47; CMCSa), DirecTV ($64; DTV), Lear ($79; LEA), and Magna International ($84; MGA) — are on the Focus List. Only technology has a larger weighting on the list.

RECOMMENDED STOCKS IN TOP-PERFORMING SECTORS
---- Price Change ----
----- Quadrix Scores -----
Company (Price; Ticker)
3
Mos.
(%)
6
Mos.
(%)
12
Mos.
(%)
Value
Perfor-
mance
Overall
Industry
Consumer Discretionary
Bed Bath & Beyond
($76; BBBY)
1
11
33
83
42
95
Homefurnishings
Comcast
($47; CMCSa)
6
11
31
71
55
93
Cable/Satellite
DirecTV ($64; DTV)
4
(1)
33
96
39
98
Cable/Satellite
Foot Locker ($36; FL)
3
(1)
11
91
26
90
Apparel
Lear ($79; LEA)
8
31
90
83
86
99
Auto Parts
Macy's ($51; M)
4
7
31
92
23
71
Dept. Stores
Magna Int'l
($84; MGA)
2
30
86
78
84
98
Auto Parts
Industrials
B/E Aerospace
($83; BEAV)
13
29
86
37
85
75
Aerospace
Dover ($92; DOV)
4
22
52
68
68
81
Indust. Machines
Union Pacific
($157; UNP)
(2)
0
29
71
26
79
Distributors
United Rentals
($65; URI)
17
10
60
77
74
81
Railroads
Note: Quadrix scores are percentile ranks, with 100 the best.

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