Standing on the threshold of 2015, if you have appetite for ‘big game’ stocks in a volatile market, you ought to first screen the broader sector for the prized catches.
Various studies and historical data have proved beyond doubt that average stocks that belong to top-performing industries have greater probability to outperform the so-called ‘blue-chips’ in a relatively poor-performing industry. And what best way to narrow down your search than to resort to some expert advice – in this case the Zacks Industry Rank.
Zacks Industry Rank
An industry is an assortment of stocks in a similar business. The Zacks Industry Rank is obtained by first calculating the average Zacks Rank for all the stocks within that industry and then assigning an ordinal rank to it. For example, an industry with an average Zacks Rank of 1.4 is better than an industry with an average Zacks Rank of 2.2. So the industry with the better average Zacks Rank would get a better Zacks Industry Rank.
Within the Zacks Industry classification, we have divided the business world into 16 sectors comprising 60 industries (at the medium or M-level) and 260 plus industries at the expanded or X-level. We rank all 260 plus X-level industries in the 16 sectors based on the earnings outlook for the constituent companies in each industry.
Short-Listing 3 Industries with Zacks Industry Rank
Leveraging on the indigenous Zacks methodology, we have shortlisted three broader industries that consist of a few X-level industries having a strong Zacks Industry Rank. These suggest their inherent sector strengths and potential to outperform in the long term. These include the Medical Devices, Semiconductor and Staffing.
Medical Devices are an integral part of the healthcare sector. The industry boasts of the most sophisticated technology products such as pacemakers, imaging instruments, dialysis machines and implants along with mundane items like thermometers and gloves.
The U.S. accounts for the lion’s share of the Medical Devices industry. However, grappling challenges and gradual slowdown in mature markets due to factors like the controversial 2.3% medical device excise tax have forced the MedTech firms to focus on other emerging economies. These include countries like Brazil, Russia, India and China (BRICs) as well as Turkey, Mexico, Malaysia, South Africa, South Korea and the Czech Republic.
These markets have proved to be lucrative for global medical device players with favorable demographics such as an aging population, rising income, increasing health awareness with government focus on healthcare infrastructure and expansion of the medical insurance coverage.
As the industry braces for a 5% CAGR from 2013-2020 with global sales reaching $514 billion by 2020, expansion in emerging markets represents one of the best potential avenues for growth going into 2015 and beyond.
As a driver, enabler and indicator of the technological prowess of an economy, the Semiconductor industry forms the foundation for virtually all other technology-based industries of a country. It is also likely to play a key role for The Internet of Things (IoT) market, which connects uniquely identifiable endpoints or ‘things’ to help them communicate without human interaction using IP connectivity.
The IoT market is expected to be one of the largest growth opportunities for the semiconductor industry over the next several years. According to data by research agency International Data Corporation, the global IoT market is likely to expand manifold to $7.1 trillion by 2020, as more and more people develop an affinity for full-time connectivity. The worldwide IoT installed base is expected to have a CAGR of 17.5% from 2013 to 2020 with wide proliferation across the full breadth of the IoT ecosystem.
The year-to-date return of the 'Philadelphia Semiconductor Index - SOX,' which is a price-weighted index composed of 18 U.S. semiconductor companies primarily involved in the design, distribution, manufacture, and sale of semiconductors, currently stands at 30.21%. Data from the World Semiconductor Trade Statistics further portray a healthy year-over-year growth for the global semiconductor market at 9% to $333 billion in 2014 and 3.4% in 2015 to $345 billion.
The Staffing industry is one of the vital constituents of the Business Services sector that reported year-over-year earnings growth of 9.7%, 10.0% and 11.3% in the first three quarters of 2014, which was much higher than the respective performances of the S&P 500 index at 1.5%, 8.3% and 6.9%.
Robust performance by the Staffing industry contributed significantly to the job growth of the country as the unemployment rate and the numbers of unemployed persons in 2014 were down by 1.2 percentage points and 1.7 million, respectively.
Latest employment data shows that total non-farm payroll employment rose by 321,000 in November, compared with an average monthly gain of 224,000 over the prior 12 months. The Business Services sector leads the pack for the highest job additions with 86,000 jobs added in November, compared with an average gain of 57,000 per month over the prior 12 month-period.
Latest data from the ASA Staffing Index that tracks weekly changes in temporary and contract employment shows that staffing jobs for the week ended Dec 7, 2014 increased 4.95% over the prior week – the highest value since the index’s inception in Jun 2006. The Staffing industry looks set to continue this growth momentum in 2015 as well.
3 Top Picks from These Industries
Amid such strong industry fundamentals, we provide you a handful of top-performing stocks based on solid individual Zacks Rank, year-to-date share price return and healthy earnings growth expectation. Let’s take a closer look at these companies that appear to be well positioned to benefit from the solid sector dynamics.
Amedisys Inc. (AMED): Within the broader healthcare industry, this Zacks Rank #1 (Strong Buy) stock is a leading healthcare at home service provider, delivering personalized home health and hospice care to over 360,000 patients each year.
With a market cap of $931.64 million, Amedisys has modest long-term earnings growth expectation of 9.0%. Generating a solid year-to-date return of 97.9%, Amedisys belongs to the Medical Outpatient/Home Care Industry that carries a Zacks Industry Rank #12 (top 5% of Zacks Ranked industries).
TriQuint Semiconductor, Inc. (TQNT): Founded in 1981 and headquartered in Hillsboro, OR, this Zacks Rank #1 (Strong Buy) stock is an original equipment manufacturer (OEM) of semiconductor communication integrated circuits (ICs).
TriQuint belongs to the Semiconductor-Communications Industry that carries a Zacks Industry Rank #16 (top 7% of Zacks Ranked industries). This $4.9-billion-market-cap-holding company has a long-term earnings growth expectation of 13.3%. TriQuint has an astounding share price return of 231.5% so far this year.
CTPartners Executive Search Inc. (CTP): Based in New York, this Zacks Rank #1 (Strong Buy) stock offers advisory and executive recruiting services to global clients across diversified industries.
With a market cap of $111.96 million, CTPartners has a healthy long-term earnings growth expectation of 12.0%. Generating a stellar year-to-date return of 169.6%, CTPartners surely leads the pack of the top-performing Staffing stocks in the year. Furthermore, it belongs to the Staffing Industry that carries a Zacks Industry Rank #14 (top 6% of Zacks Ranked industries).
Although past performances do not guarantee similar results in the ensuing year, these stocks (by virtue of favorable Zacks Industry Ranks) are expected to continue their growth momentum in 2015. You'd likely do better to own such tried-and-tested stocks than bet on non-performers.
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