Top Industries For Growth, Value

9/1/2014


Anyone who has moved to a new neighborhood to take advantage of better schools, safer streets, or richer night life understands the importance of location.

We are all happier when our neighbors mow their lawns regularly and don't play loud music late at night. Neighborhoods also matter in the stock market, but not for the same reason. If your stock sits nestled in a group of 10 similar stocks, all with investment appeal, the proximity to excellence won't make your company a better option. However, when you look for a new house, you'll find more and better choices on some streets than others, just as some industries seem packed with fundamentally solid stocks.

In the table below, we present the top industries for value and growth. We started with 149 industry groups, eliminated the 18 that contained fewer than seven stocks, then ranked by average Quadrix scores for Value and Momentum. Three industries made the top 14 in both.

Check out the table below for growth and valuation metrics for each of those industries, as well as appealing stocks in some of the groups. Curious how the other groups stack up? Review all 149 at www.DowTheory.com/Go/TopInd. For Quadrix scores and other statistics on industry groups updated weekly, visit our Industry Group Studies report at www.DowTheory.com/Go/Group.

The six industries with the highest average Value scores fall into either the financial or energy sectors. We recommend four energy stocks on our Buy List, but none hail from the drilling or integrated oil & gas industries. Two integrated energy companies — Hess ($100; HES) and Occidental Petroleum ($103; OXY) — earn A (above average) ratings on our Monitored List.

We cover A-rated stocks in three of the four highest-scoring financial industries, while three stocks from the bank group make our recommended lists. Wells Fargo ($52; WFC) is a Focus List Buy and a Long-Term Buy, while J.P. Morgan Chase ($60; JPM) and U.S. Bancorp ($42; USB) are Long-Term Buys. All three banks trade at a discount to their five-year average price/earnings ratios.

On the growth side, cyclicals dominate. Of the five industries with the highest average Momentum score, four — airlines, railroads, construction materials, and construction/farm equipment — often see their results fluctuate based on economic conditions.

All four of the cyclical groups averaged double-digit growth in per-share profits and operating cash flow over the last 12 months. We recommend stocks in two of the groups — Alaska Air Group ($46; ALK) in airlines and Union Pacific ($106; UNP) and Norfolk Southern ($106; NSC) in railroads. Alaska Air and Union Pacific are Focus List Buys, and all three are Long-Term Buys.

TOP INDUSTRIES FOR GROWTH AND VALUE

Below we list the 14 industries with the highest average Quadrix Value scores, and the 14 with the highest Momentum scores. Fewer than 28 industries are listed, and the three that look attractive on both fronts are listed in green.

All of the listed stocks are rated A (above average) on our monitored list; those on our buy lists are in bold. Industries with fewer than seven companies are excluded.

Quadrix
Value
Score
Price/Earnings
------- Ratio -------
Price/Sales
------- Ratio -------
Quadrix
Momen-
tum
Score
------ 12-Month Growth ------
Quadrix
Overall
Score
Industry (No. Of Companies)
Company (Price; Ticker)
Trailing
Vs. 5-
Yr. Avg.
Trailing
Vs. 5-
Yr. Avg.
Sales
(%)
EPS
(%)
Operating
Cash Flow
(%)
Value
Insurance — Multiline (16)
89
15
1.11
0.9
1.26
56
7
16
32
79
  American Int'l ($56; AIG)
87
12
NA
1.2
1.50
45
(3)
17
62
75
Oil & Gas — Drilling (21)
84
15
1.00
1.9
0.84
62
16
27
19
76
Banks (28)
82
12
0.97
2.2
1.18
53
0
14
(56)
74
  J.P. Morgan ($60; JPM)
90
10
0.88
2.2
1.42
25
(6)
(10)
NA
74
  Wells Fargo ($52; WFC)
80
13
0.98
3.1
1.58
42
(4)
7
NA
87
  U.S. Bancorp ($42; USB)
73
14
0.91
3.6
1.33
44
(3)
5
NA
72
Oil & Gas — Integrated (24)
81
14
1.19
1.3
1.00
44
2
(7)
4
72
  Hess ($100; HES)
65
18
1.56
1.6
2.00
33
(21)
(20)
(11)
65
  Occidental Petro. ($103; OXY)
80
15
0.95
3.2
0.94
61
4
25
6
86
Insurance — Life & Health (26)
80
16
1.39
1.1
1.31
47
8
16
(3)
70
Insurance — Ppty. & Cas. (59)
79
17
1.19
1.2
1.20
56
13
28
3
75
  Travelers ($94; TRV)
97
10
0.91
1.2
1.12
70
3
30
21
97
Paper (16)
78
21
1.11
0.8
1.25
54
7
25
21
63
Consumer Finance (26)
77
13
0.94
1.7
1.01
53
8
(1)
(1)
70
  Capital One Fin'l ($82; COF)
86
11
1.05
1.9
1.42
54
(4)
(2)
(20)
89
Automobiles (12)
76
12
0.82
0.6
1.11
60
14
24
29
74
Containers — Metal/Glass (11)
73
17
1.06
0.8
1.23
48
3
9
(5)
62
Banks — Regional (366)
72
16
1.03
2.9
1.57
48
2
6
54
66
Telecom Svcs. — Integ. (40)
72
18
1.30
1.2
1.06
43
0
2
(7)
56
Growth
Airlines (18)
75
19
1.19
0.9
1.32
72
9
45
19
76
  Alaska Air Group ($46; ALK)
88
9
0.79
1.2
1.82
95
8
48
15
100
  Southwest Airlines ($32; LUV)
73
29
1.23
1.2
1.82
98
5
140
29
99
Insurance — Reinsurance (16)
82
8
0.85
1.8
1.02
71
24
69
1
82
Railroads (8)
44
21
1.11
4.0
1.34
68
9
10
20
70
  CSX ($31; CSX)
60
17
1.12
2.5
1.18
36
4
1
(3)
64
  Norfolk South. ($106; NSC)
58
18
1.20
2.9
1.25
76
5
18
3
89
  Union Pacific ($106; UNP)
53
11
0.66
4.2
1.44
83
7
17
3
94
Construction Materials (11)
37
36
1.14
2.2
1.34
66
7
39
46
47
Constr. & Farm Equip. (32)
62
20
1.16
1.2
1.27
65
8
19
20
70
  Caterpillar ($108; CAT)
74
19
1.08
1.2
1.12
48
(9)
(1)
24
77
Financial — Multisector (7)
50
33
0.98
1.0
1.28
64
29
3
27
59
Human Resources (23)
56
25
0.95
1.3
1.16
64
13
17
14
65
Homebuilding (28)
58
23
0.84
1.1
0.94
64
34
55
3
58
Hotels (21)
47
30
1.17
2.0
1.25
63
8
25
26
58
Real Estate Services (10)
46
23
0.90
2.1
1.36
63
31
56
48
59
  Jones Lang ($134; JLL)
57
21
0.90
1.2
1.15
97
22
29
90
95
Trucking (25)
56
29
1.13
1.0
1.59
60
10
1
8
65
Semiconductors (102)
42
26
0.96
2.8
1.23
60
9
29
24
50
  Intel ($35; INTC)
57
19
1.49
3.2
1.25
85
3
12
3
94
  Skyworks ($55; SWKS)
38
23
1.08
5.0
1.54
99
18
41
86
94
Consumer Electronics (14)
52
17
1.08
1.5
1.37
60
2
7
19
61
Notes: Quadrix scores are percentile ranks, with 100 the best.   Industries with fewer than seven companies are excluded.   Averages exclude some outliers.     NA Not available.

 


Playing keep-away

Have you ever visited a deli and detected an odor that did not belong?

Suppose you sidled up to the counter and the man slicing the meat leaned over and whispered, "Stay away from the tuna, it smells a little funny." You would probably end up with corned beef, even if you started with a taste for tuna.

While plenty of stocks, industries, and sectors conceal hard-to-find problems, sometimes you can tell the sour spots by the smell. The 10 industries in the table below carry an obvious stink — subpar average Quadrix scores for:

• Value.
• Momentum, which indicates poor operating momentum.
• Overall, which reflects weak fundamentals.

Does this mean you should sell any stocks you own in these industries? Not necessarily, because flowers occasionally sprout from a pile of manure. However, investors looking for buy ideas are less likely to find them here.

By the numbers, 10 groups to avoid

Industry (No. Of Cos.)
Quadrix Value
(Rank Versus
Other Industries)
Quadrix Momentum
(Rank Versus
Other Industries)
Quadrix Overall
(Rank Versus
Other Industries)
Advertising (17)
41
(105)
37
(117)
34
(123)
Coal & Consumable Fuels (23)
38
(109)
35
(122)
28
(126)
Gold (56)
32
(119)
43
(99)
26
(128)
Health Care — Biotech. (251)
13
(131)
40
(110)
17

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