Finding the latest and greatest industry is not easy and many investors are often late to the party. When a company is hot, other stocks in the sector will typically move in sympathy with that companies stock. This momentum can lead to strength in an entire sector.
The Zacks Industry rank gives investors a clear view into which industries are outperforming. When an investor has chosen what industry looks most attractive, they can use the Zacks Rank to pick the best stocks available within that particular industry.
I wanted to review some top ranked industries and stocks that look poised to lead that industry in the near future. This is a good habit for any investor to get into and can be done easily by navigating through the zacks.com website.
On the menu bar on the top on the site, highlight “stocks” and click on “Zacks industry Rank”. There you can find all 265 industries and where a company might rank amongst them. By clicking on an industry, you can bring up a list of top ranked stocks and research the company further.
I picked out four Zacks #1 Ranked (Strong Buy) stocks that are in the top 35 Industries. In order to find these stocks quickly, I did a screen setting parameters for Zacks Rank (=1) and Zacks Industry Rank (<=20). The screener gave me 51 stocks as a result in which I picked. I’d encourage investors to use my approach in the future when scanning for their own stocks.
With this data in mind, let’s get to the list…
Winning Stocks in Top Ranked Industries: Taiwan Semiconductor Mfg. Co. Ltd. (TSM)
Taiwan Semiconductor (TSM) is a Zacks Rank #1 (Strong Buy) that is s the world’s largest dedicated integrated circuit foundry. As a foundry, the Company manufactures ICs for its customers based on their proprietary IC designs using its advanced production processes. Semiconductor fabrication foundries are ranked number 1 out of 265 of the Zacks Industry rank.
Taiwan Semi has a market cap of $131 billion and a forward PE of 14. The company pays a dividend of 2.28% and has an expected EPS growth of 15%. The stock sports a Zacks Style Score of “B” in Value and a VGM score of “B”.
Estimates for TSM are rising for fiscal year 2016. Over the last 90 days, we have seen revisions jump 4.6% from $1.73 to $1.81. The company reports earnings on April 21st; it wouldn’t be a surprise to see them beat on EPS as they have beaten every quarter for the last four years. The stock has trended higher over that time period, up almost 100% since early 2012.
Winning Stocks in Top Ranked Industries: Smith & Wesson Holding Corp (SWHC)
Smith & Wesson (SWHC) is a Zacks Rank #1 (Strong Buy) that is one of the world’s leading producers of quality handguns, law enforcement products and firearm safety and security products. Law enforcement personnel, military personnel, target shooters, hunters, collectors and firearms enthusiasts throughout the world have used the company’s products with confidence for 150 years. Leisure and recreation is ranked number 24/265 (Top 9%) of the Zacks Industry rank.
Smith & Wesson has a market cap of $1.5 billion and a forward PE of 17. The company pays no dividend and has an expected EPS growth of 5%. The stock sports a Zacks Style Score of “A” in Growth and a VGM score of “C”.
Estimates for Smith & Wesson are rising for fiscal year 2016 and 2017. Over the last 90 days, we have seen 2016 revisions jump 28%, from $1.32 to $1.70, and 2017 revisions up 34%, from $1.29 to $1.73. The company reported earnings on March 3rd, in which they saw Q3 at 59 cents per share versus the 41 cents per share expected. The stock responded very well, surging over 10% that day.
The beautiful chart below shows us a four year streak of quarterly EPS beats. The stock price subsequently followed, allowing the stock to rise fivefold since early 2012.
Winning Stocks in Top Ranked Industries: Headwaters Inc (HW)
Headwaters (HW) is a Zacks Rank #1 (Strong Buy) that is a diversified growth company providing products, technologies and services to the energy, construction and home improvement industries. Through its alternative energy, coal combustion products, and building materials businesses, the company earns a growing revenue stream that provides the capital needed to expand and acquire synergistic new business opportunities. Building and Construction is ranked number 29/265 (Top 11%) of the Zacks Industry rank.
Headwater is valued at $1.3 billion and has a forward PE of 13. The stock sports a Zacks Style Score of “C” in Value and Growth and a VGM score of “C”.
Estimates for Headwaters are rising for fiscal year 2016 and 2017. Over the last 90 days, we have seen 2016 revisions jump 28%, from $1.07 to $1.38, and 2017 revisions up 19.5%, from $1.23 to $1.47. The company reported earnings on March 3rd in which they saw Q3 at 59 cents per share versus the 41 cents per share expected.
Winning Stocks in Top Ranked Industries: Convergys Corp (CVG)
Converges (CVG) is a Zacks Rank #1 (Strong Buy) that is one of the global leaders in the provision of outsourced, integrated billing and customer care services. It focuses on developing long-term strategic relationships with clients in customer-intensive industries including telecommunications, cable, broadband, satellite broadcasting, Internet services, technology and financial services.
Convergys has a market cap of $2.5 billion and a forward PE of 14. The company pays no dividend and has an expected EPS growth of 5%. The stock sports a Zacks Style Score of “B” in Value and a VGM score of “B”.
Estimates for Convergys are rising for fiscal year 2016. Over the last 30 days, we have seen 2016 revisions jump 1.06% from $1.87 to $1.89. The company has surprised to the upside on EPS seven out of the last eight quarters and will try for another beat on May 3rd.
Winning Stock Plays in Strong Industries
Companies that are in leading sectors and industries will move higher in sympathy with other companies in the industry. Investing in the most fundamentally companies will not only allow one to ride the current trend, but also be well positioned if that industry has a setback. The Zacks Industry Rank and the Zacks Rank itself allow investors to filter through thousands of stocks in order to find the winners.
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