Screening For The Best Sector(s)

This week, Kevin Matras talks about one of the screens he¹s been using to find strong sectors, and the best stocks within them. See three stocks from the best sector, and two more stocks from the second best sector and how you can get them all.

Here’s a screen I first published back in August 2007 after the market sell-off. This screen isn’t a trading strategy per se, but rather a screen to help me identify which sector and industry (and therefore stocks) held up the best during sell-offs. I’ve re-ran it a few times since then because the “best” sectors and industries do change. The idea being, the ones that showed the greatest resiliency should be the ones that will breakout first. After the recent sell-off we’ve had, it’s time once again to see what it’s coming up with.

Parameters

The screen starts out with the usual items:

Price >= 5

Volume (Avg. 20 Days) >= 100,000

Then I specifically screen for the sector with the greatest relative price change over the last four weeks. Basically, I’m looking for the sector that performed, on average, the best in comparison to the S&P 500.

From there, I narrow that sector down to only those stocks with a Zacks Rank of 1 or 2. (The Zacks Rank is one of the best rating systems out there, so this automatically puts the odds in my favor.) For good measure, I also make sure the stocks have positive earnings estimate revisions over the last four weeks for both Q(1) and F(1). (Studies show that stocks with rising earnings estimates outperform the market.)Then I narrow that list down even more by looking for the; top 20 stocks within the top Sector based on the relative percent change in price over four weeks. First I looked for the best sector based on the average percent change in price over four weeks. Then I zeroed in on the best 20 stocks within that sector.

Lastly, I cull it down to the top 10 stocks within that sectors medium-sized industry. The best sector this time was the oils-energy sector.

The top medium-sized industries within that sector are:

Coal
Oil
Oil-Exploration
Oil-Misc.
Oil-Integrated
Oil & Gas Product-Pipeline

Here’s three stocks from this week’s list (for 3/11/08):

CXO Concho Resources, Inc.
DNR Denbury Resources, Inc.
JRCC James River Coal Co.

As you can see from the above list, it comes from the oils-energy sector. For anybody who may be experiencing energy/oil fatigue, I also ran it for the second best sector too; that was basic materials. (The industries within that sector were: chemicals & fertilizer, metals (non-ferrous), steel and finally paper.

Here’s a couple of stocks from that sector:

BVN Compania De Minas Buenaventura
RKT Rock-Tenn Co.

As you can see, you can open this screen up to look for the top two, three or five sectors, or whatever you choose.

Many screeners won’t let you screen for the top sectors or industries. But in the “Research Wizard” you can. Now you can find the top sectors based on whatever metric you like, and then drill down to the best industries and on to the best stocks.

Picking winning stocks has never been so easy—and now you can do it too.

Sign up for your two-week FREE trial to the Research Wizard today. Remember, the key to successful screening is in discovering those screens that have produced profitable results in the past. And that’s exactly what you get with the powerful screening and back-testing ability of the Research Wizard. You can do it. Try it today for free: http://researchwiz.zacks.com

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.
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