Looseness of Industry Groupings
(TMF Sheard)
LEXINGTON, KY. (July 15, 1998) -- The screens I track in the Workshop are based on a bottom-up approach, that is, choosing stocks on their individual characteristics rather than working from the top down (looking at the economy and choosing industries, and then finally, individual stocks). But let's look at some results based on industry groups for a change of pace.
The following list represents the industry groups in the Value Line Investment Survey. The list is ranked by the groups' year-to-date composite returns (through July 8).
186% Internet 96% Retail Bldg Supply 96% Bank (Foreign) Comp. 77% Telecom. Equipment 66% Insurance (Life) Comp. 63% Retail Store 59% Home Appliance 53% Foreign Telecom. 51% Securities Brok. Comp. 48% Apparel 46% Computer Softw & Svc 44% Shoe 42% Cable Tv 41% Beverage (Alcoholic) 40% Restaurant 39% Retail Specialty 37% Air Transport 35% Healthcare Info Sys 35% Advertising 34% Auto & Truck 34% Bank (Canadian) Comp. 32% Office Equip & Sup 32% Drug Industry 31% Financial Svcs Comp. 31% Beverage (Soft Drink) 31% Elec Utility (Foreign) Comp. 30% Insurance (Diversified) Comp. 30% Recreation 29% Drugstore 29% Food Wholesalers 28% Entertainment 28% Canadian Energy 26% Furn/Home Furnishing 26% Chemical-Basic 25% Electrical Equipt. 25% Medical Supplies 25% Grocery 23% Cement & Aggregates 23% Telecom. Services 23% Bank Comp. 22% Investment Company-Fgn Comp. 21% Manu Housing/Rec Veh 20% Building Materials 20% Newspaper 18% Publishing 17% Insurance (Prop/Casualty) Comp 16% Medical Services 15% Toiletries/Cosmetics 15% Thrift Industry Comp. 15% Auto Parts-Rep 14% Bank (Midwest) Comp. 14% Aerospace / Defense 13% Household Products 13% Auto Parts-Oem 13% Water Utilities 12% Textile 12% Coal/Alt Energy 12% Food Processing 11% Homebuilding 11% Tobacco 11% Truck'g/Transp Lease 9% Chemical-Diversified 8% Packaging &Container 8% Investment Co. (Dom) Comp. 7% Natural Gas Diver. 7% Copper 7% Investment Co. (Income) Comp. 7% Foreign Elec/Entertn 7% Machinery 6% Metals & Min (Div) 5% Precision Instrument 5% Petroleum-Integrated 5% Tire & Rubber 4% Chemical-Specialty 4% Steel-Integrated 3% Electric Util.- Cen 3% Petroleum-Producing 2% Aluminum 2% Electric Util.- East 1% Metal Fabricating 1% Maritime 1% Electronics 0% Electric Util.- West -2% Semiconductor -2% Gold/Silver Mining -2% Natural Gas Distrib -2% Diversified Co -3% Paper & Forest Prods -3% Steel-General -4% Environmental -10% Hotel / Gaming -10% Oilfield Svcs&Equip -15% Railroad -16% Computer & Perip. -20% Semiconductor Cap Eq -20% Industrial Services
Obviously it's been a rip-snorter for a handful of industries; that's typically the case every year. The shocker, for me anyway, is the 16% loss listed for the Computer & Peripheral group.
We tend to overlook that the group isn't just Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>, Apple <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %>, and Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>, with their massive triple-digit gains. It's a range of companies, thirty six in all, that also includes some of this year's biggest disappointments: Adaptec <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADPT)") else Response.Write("(Nasdaq: ADPT)") end if %>, down 62%; Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>, down 53%; Applied Magnetics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %>, down 49%; and Sequent Computer Sys. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SQNT)") else Response.Write("(Nasdaq: SQNT)") end if %>, down 41%. In fact, fifteen of the thirty six stocks are showing a loss for the year, while another eight are showing impressive gains of 60% or better.
In other words, industry groupings don't always tell the whole story and it's important to separate out the quality companies in any such broad category. Incidentally, for those of you still following the original Investing for Growth model, this is one of the reasons I have come to believe a relative strength screen makes a better final test than does Value Line's industry ranking. The groupings are sometimes too broad to be useful in making a call on a selection of stocks and turning to something specific to each stock (its total return over the previous six months) gives us a more useful tool for narrowing the list of candidates.
Check out the latest file updates for the Workshop:
New Rankings
| 1998 Returns
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[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]