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Industry Ranking

Generally speaking, is a stock that is ranked high in a low ranked indusrty, a better bet than a low ranked stock in a high ranked industry ? Which scenerio is statisticslly a better investment ?

Comments

  • markdmarkd mod
    edited January 16
    I haven't done the statistics - good topic for a business school TA class paper.

    You can always measure the two stocks against a market index to get their relative performance.

    A stock that is lagging a high flying industry may still be doing very well compared to the market as a whole. It's just that others in that industry are doing better and you may want to be in of them. The danger with a high flying industry is, you may be coming in late and there may not be too much upside left. Laggards do tend to pop towards the end of a cycle as late-coming bargain hunters look for something to buy, but they will run into headwinds as the leaders start to fail.

    A leader in a low ranked industry may be the harbinger of a new cycle for that industry. If most things have stopped going down, but just haven't started going back up again, then the first ones that do start to rise could be the place to be when conditions for that industry improve. But, its a good idea to look at a monthly chart going back 10, 15, 20 years of the industry in question (the $DJUSxx chart) and at least some of its components to see what kind of volatility it shows. Materials and Energy companies ride a pretty good roller coaster, while most Staples and Utilities and income oriented stocks in general, are much more moderate. Of course there are always exceptions to both statements.
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