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New Top Rated Sectors

Kevin Matras

It's that time again. Every few months, I like running this screen to find the new top rated sectors. It's especially timely now as recent ups and downs have produced a new list of top groups.

And since roughly half of a stock's price move can be directly attributed to the group that it's in, it's important to stay on top of this.

By definition, a strong Sector or strong Industry will have more of its companies moving higher than a weak Sector or weak Industry.

If the majority of stocks are going down in an industry, it can't be a strong industry. If more stocks are going up, it is a strong industry.

What's interesting is that I've done some testing over the past and found that, often times, just getting into an average stock in a strong group will outperform the best stocks in a troubled group.

This doesn't mean you can just pick anything and you'll make money. Far from it. But it illustrates how powerful the underlying group is to the success of your stock picking.

There are several ways you can define the best Sectors or Industries.

Today, I'm combining my two favorite ways.

1) I'm ranking the sectors based on the average Zacks Rank.

2) I'm ranking the sectors based on the percentage of stocks trading within 10% of their 52 week highs.

This is the better of two great ways to look at sectors.

Groups with the best Zacks Rank outperform those with worse Zacks Ranks.

And groups with a higher percentage of stocks trading at or near their 52 week highs show something positive is happening to the entire group for so many stocks to be trading near their highs.

First, I numerically rank the sectors with the best Zacks Rank.

Then I do the same for the sectors with the highest percentage of new highs.

Then I add the scores together from each method to get a composite.

And then lastly, I'll re-sort the total score from lowest to highest to give me the best sectors.

This way I'm getting the best Zacks Ranked groups (those with the highest upward earnings estimate revisions) as well as the groups with the best responsiveness as evidenced by their price performance.

The new top rated Sectors based on this scoring method are:

1) Retail-Wholesale
score = 4 (1st place)

2) Aerospace
score = 8 (2nd place)

3) two way tie between Business Services and Finance (surprise, surprise)
each with a score = 9 (tied for 3rd place)

4) three way tie between Transportation, Utilities, and Medical
each with a score = 16 (tied for 4th place)

Here are 5 stocks, one from each of the top rated Sectors (for Tues., 12/13/11):

ULTA Ulta Salon, Cosmetics & Fragrance, Inc. - Retail-Wholesale
HXL Hexcel Corp. - Aerospace
ASGN On Assignment, Inc. - Business Services
AEA Advance America, Cash Advance Centers, Inc. - Finance
ACHN Achillion Pharmaceuticals, Inc. - Medical

All of these stocks are in the top Sectors as we've defined them and they are all on the move.

Start picking stocks in the best Sectors and Industries on your own today. It's easy to do and with the Research Wizard. Start putting the odds of success in your favor. You can do it.

Learn how today.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks' portfolios and strategies are available at: http://www.zacks.com/performance.

ACHILLION PHARM (ACHN): Free Stock Analysis Report

ADV AMER CASH (AEA): Free Stock Analysis Report

ON ASSIGNMENT (ASGN): Free Stock Analysis Report

HEXCEL CORP (HXL): Free Stock Analysis Report

ULTA SALON COSM (ULTA): Free Stock Analysis Report

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