Sectors Get Special Treatment

2/22/2010


Our Quadrix® stock-rating system assigns percentile ranks based on dozens of statistics, allowing the comparison of companies in different sectors. But sometimes Quadrix plays favorites.

For example, stocks in the health-care and consumer-staples sectors earn high average Overall scores today. Check out the table below. In a universe that consists of the S&P 1500 Index as well as all companies covered in Dow Theory Forecasts or our sister publication Upside, nearly 50% of health-care stocks earn Overall scores above 80. That presents us with a lot of high-scoring options.

NOT ALL SECTORS CREATED EQUAL
In a universe containing the S&P 1500 Index stocks plus all companies followed by the Forecasts and sister publication Upside, health-care and consumer-staples stocks average Quadrix Overall scores above 70. In contrast, the energy sector earns poor scores.
——————— Average Quadrix Score * ———————
% With
Overall
Scores
Over 80
Sector
Momen-
tum
Value
Quality
Fin'l
Str.
Earns.
Ests.
Perfor-
mance
Overall
Consumer Discretionary
60
59
58
55
62
58
63
36
Consumer Staples
60
66
71
60
55
54
72
41
Energy
29
54
51
59
45
56
48
12
Financials
51
57
51
55
43
48
53
17
Health Care
64
62
74
65
52
50
72
49
Industrials
40
59
60
58
47
42
55
16
Materials
51
60
54
47
51
46
55
17
Technology
58
45
56
56
60
49
55
21
Telecom
Services
52
78
65
60
32
34
66
25
Utilities
47
78
57
54
46
35
61
7
Total Universe
53
58
59
57
52
49
59
26
* Quadrix scores are percentile ranks, with 100 the best.

To help us select the best out of the best, we use two sector-specific Quadrix scores. For each of the 10 market sectors, we designed two scores to compare companies to others in the same sector. The 12-Factor Sector score relies on 12 individual Quadrix factors that work particularly well within a sector. The Reranked Overall score reflects all of the six category scores that make up the traditional Overall score — Momentum, Value, Quality, Financial Strength, Earnings Estimates, and Performance — but overweights scores that work best within a sector.

These sector-specific scores have proved effective at identifying stocks that outperform. The table at the bottom of the page lists stocks that score well for both the sector-specific scores and the traditional Overall score. In the following paragraphs, we review two of those stocks.

Unlike General Mills’ ($71; GIS) robust retail segment, the bakeries and food service division has experienced weaker sales in recent quarters, as fewer people dined out. But the unit — which counts among its customers distributors, convenience stores, restaurants, and cafeterias — also positions General Mills to benefit from a rebound in consumer spending.

Lower commodity costs have supported growth in per-share profits, up 14% over the last four quarters. That trend has also helped General Mills grow cash flow and fatten operating profit margins.

General Mills anticipates long-term annual growth in the low single digits for sales and in the high single digits for per-share earnings. The company also reaffirmed its expectations for 14% to 15% higher per-share profits in fiscal 2010 ending May. General Mills is a Buy and a Long-Term Buy.


For 2010, General Dynamics’ ($70; GD) defense segments will likely drive growth. President Obama’s request for $708 billion in defense spending for fiscal 2011 ending September includes a 3% higher base budget and additional spending for action in Iraq, Afghanistan, and Pakistan. In February, the Pentagon’s weapons chief approved plans to purchase 250 armored vehicles built by General Dynamics. The troop surge in Afghanistan could spark sales of weapon systems, one of the higher-margin segments of the combat-systems unit.

General Dynamics’ guidance calls for 3% to 5% profit growth this year, though the consensus estimate has risen to 6% since the release of December-quarter results. Wall Street sees management’s guidance as conservative, in part because of modest margin assumptions in the aerospace segment. This year, General Dynamics expects to deliver more large-cabin (higher-margin) business jets and fewer of its midsize (lower-margin) jets. At just 11 times trailing earnings, the stock trades 27% below the five-year average P/E ratio. General Dynamics is a Buy and a Long-Term Buy.

SCREEN OF THE MONTH — TOP STOCKS IN 9 SECTORS
For this month’s screen, we identified stocks that score in the top one-third as measured by Quadrix Overall and both Quadrix sector-specific scores. We selected up to five stocks in each sector except materials, where we found none that qualified. All of the stocks earn A ratings in the Forecasts’ Monitored List or qualify as buys in Upside, which focuses on small-cap stocks.
– Sector Scores –
Sector
Company (Price; Ticker)
Mkt.
Value
($Bil.)
Div.
Yield
(%)
Trailing
P/E
Ratio
12-
Factor
Reranked
Overall
Quadrix
Overall
Score
Rating
Consumer Discretionary
Advance Auto Parts
($43; AAP)
4.1
0.6
14
69
75
93
LT Buy
Big Lots ($31; BIG)
2.6
0.0
15
95
99
99
Upside
Buy
Comcast
($16; CMCSa)
44.8
2.4
12
88
88
97
Focus
Buy †
Ross Stores
($47; ROST)
5.8
1.4
15
86
98
99
Focus
Buy †
TJX Companies
($38; TJX)
16.5
1.2
16
77
90
97
LT Buy
Consumer Staples
CVS Caremark
($34; CVS)
47.4
1.0
13
92
90
90
Focus
Buy †
General Mills
($71; GIS)
24.1
2.8
16
94
68
87
Focus
Buy †
Lancaster Colony
($58; LANC)
1.6
2.1
14
90
99
98
Upside
Buy
Energy
National Oilwell
($44; NOV)
18.5
0.9
11
95
100
94
Buy †
Oceaneering Int’l
($56; OII)
3.1
0.0
16
80
84
78
Focus
Buy †
Transocean ($83; RIG)
26.7
0.0
6
100
97
83
Focus
Buy †
Financials
Aflac ($48; AFL)
22.7
2.3
10
81
96
96
Focus
Buy †
EZCORP ($18; EZPW)
0.9
0.0
11
100
99
100
Upside
Buy
Travelers ($52; TRV)
27.9
2.6
8
99
98
98
Buy †
Health Care
AmerisourceBergen
($28; ABC)
8.0
1.2
15
99
97
98
Focus
Buy †
Cantel Medical
($20; CMN)
0.3
0.5
18
85
72
92
Upside
Buy
Cooper Companies
($38; COO)
1.7
0.2
17
97
93
89
Upside
Buy
Hospira ($51; HSP)
8.4
0.0
16
81
67
89
Focus
Buy †
U.S. Phys. Therapy
($17; USPH)
0.2
0.0
17
93
74
92
Upside
Buy
Industrials
APAC Cust. Svcs.
($5; APAC)
0.3
0.0
9
80
94
96
Upside
Buy
General Dynamics
($70; GD)
27.2
2.2
11
92
97
97
Buy †
L-3 Communications
($88; LLL)
10.2
1.8
11
99
100
97
A
Raytheon ($55; RTN)
21.2
2.3
11
97
91
95
Buy
Technology
Cognizant Tech.
($47; CTSH)
14.4
0.0
27
98
97
95
Focus
Buy †
Dolby Laboratories
($53; DLB)
6.2
0.0
26
85
96
92
Focus
Buy
Hewlett-Packard
($49; HPQ)
120.3
0.6
13
82
90
90
Buy †
NetScout Sys.
($15; NTCT)
0.6
0.0
18
86
68
94
Upside
Buy
Oracle ($24; ORCL)
120.6
0.8
16
78
91
93
Buy †
Telecom Services
NII Holdings
($38; NIHD)
6.6
0.0
19
67
83
83
Focus
Buy
Utilities
Energen ($45; EGN)
3.2
1.2
13
96
98
89
LT Buy

Notes: 12-Factor, Reranked Overall, and traditional Overall scores are percentile ranks, with 100 the best.      † Also qualifies as a Long-Term Buy.

For sector scores on more than 1,500 stocks, visit our Web site at www.DowTheory.com/go/Sectors.


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