In Search Of The Best Sectors

8/31/2015


Whether you focus on growth companies, value plays, or stocks with both characteristics, this story will help you find the most attractive sectors. To isolate hot spots, we dissected the Dow Jones U.S. Index, which spans 1,250 companies representing roughly 95% of the market capitalization of the U.S. stock market.

Dow Jones classifies stocks as growth, value, or neutral (a mix of growth and value traits). Those "styles" are derived using six measures: trailing earnings growth, projected profit growth, trailing P/E ratio, P/E ratio on projected earnings, price/book ratio, and dividend yield. We slotted the stocks into 10 broad sectors, segmenting the field and helping us uncover attractive corners of the market. Among our findings:

➤ Quadrix leaders. As shown below, based on the percentage of Dow Jones stocks with Overall scores above 80 and Value scores topping 50, growth investors should favor consumer-discretionary stocks, while value investors should lean on the consumer-staples, materials, and financial sectors. For stocks labeled neutral, the consumer-discretionary and materials sectors are attractive.

SECTORS AND STYLES IN QUADRIX
Quadrix Overall and Value scores work for growth, value, and neutral stocks in the Dow Jones U.S. Index. Pay extra attention to stocks from high-scoring sectors like consumer discretionary.
---- Growth Stocks ----
----- Value Stocks -----
---- Neutral Stocks ----
Dow Jones U.S. Index
% Overall
Above 80
And Value
Above 50
Average
Since
1992
% Overall
Above 80
And Value
Above 50
Average
Since
1992
% Overall
Above 80
And Value
Above 50
Average
Since
1992
Cons. Discretionary
19
17
12
14
20
18
Cons. Staples
15
20
24
15
20
20
Energy
10
25
16
29
0
27
Financial
13
19
21
24
17
20
Health Care
6
12
13
17
0
16
Industrials
12
16
16
14
12
18
Materials
10
16
24
12
22
19
Technology
9
12
12
12
11
15
Telecom
0
7
14
7
0
11
Utilities
0
22
9
6
50
13

➤ Profit growers. Using estimated current-year profit growth as shown in the table below, growth investors would find the largest earnings gains in the consumer-discretionary sector. Among value and neutral stocks, financials are expected to deliver the best growth.

➤ Reasonable valuations. Based on trailing P/E ratios and Value scores relative to averages since 1992, among growth stocks the energy sector looks particularly cheap. For value stocks, the materials sector appears reasonably priced, while technology and utilities look good in the neutral group.

Follow our lead

Limiting your portfolio to only a couple sectors and a single style can be a mistake, because that greatly shrinks the size of your opportunity set. Still, by emphasizing select pockets of the market, you can help put the odds in your favor. Our Buy List does that for you.

The list's 20 stocks hail from five attractive sectors, paced by a 30% weighting in technology and 29% in consumer discretionary. In contrast, those two groups combine to account for 31% of the capitalization-weighted index.

Our style allocations are fairly balanced. About 41% of the Buy List is invested in growth stocks, with 29% in value and 29% in neutral. For comparison, the index is 38% growth, with 49% in value and 13% neutral.

Here are standout picks from five attractive sectors. All five are positioned for solid growth and capable of climbing 15% to 20% in the year ahead.

• Alaska Air ($76; ALK)
• Gilead Sciences ($107; GILD)
• Google ($660; GOOGL)
• Jones Lang LaSalle ($147; JLL)
• Lear ($100; LEA)

GROWTH AND VALUE STATS
Below we separated the Dow Jones U.S. Index based on growth, value, and neutral styles. Stocks were divided into 10 broad sectors to help identify attractive pockets based on estimated current-year profit growth and valuation.
-------------- Growth Stocks --------------
-------------- Value Stocks --------------
-------------- Neutral Stocks --------------
Dow Jones
U.S. Index
Est. Curr.-
Yr. EPS
Growth
(%)
P/E
Ratio
Norm
Since
'92
Value
Score
Norm
Since
'92
Est. Curr.-
Yr. EPS
Growth
(%)
P/E
Ratio
Norm
Since
'92
Value
Score
Norm
Since
'92
Est. Curr.-
Yr. EPS
Growth
(%)
P/E
Ratio
Norm
Since
'92
Value
Score
Norm
Since
'92
Cons.
Discretion.
17.0
24
25
48
47
4.0
21
19
61
66
10.1
20
21
54
57
Cons. Staples
7.7
21
22
47
49
4.1
17
17
55
66
4.5
19
19
50
58
Energy
(30.7)
18
25
59
51
(9.0)
12
18
64
68
(43.7)
16
21
62
60
Financial
12.3
25
25
43
45
9.2
19
17
56
64
13.0
19
20
43
54
Health Care
16.4
30
28
31
35
4.7
19
20
51
58
10.0
27
23
29
45
Industrials
6.7
21
25
55
47
(5.2)
17
19
66
66
4.2
18
21
61
57
Materials
4.6
24
23
51
50
(0.2)
13
20
72
65
10.6
18
20
59
60
Technology
12.2
30
31
38
37
2.1
19
23
64
54
5.9
21
27
53
45
Telecom
8.7
27
32
26
37
5.5
24
19
64
65
NA
59
26
45
41
Utilities
8.5
20
24
59
48
1.2
17
16
63
71
10.6
10
19
80
64

 


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com