It’s that time of the week when Top Equity News breaks out the sector can opener to look inside. Studies have shown that a simple strategy of investing in the top three performing sectors for the last three months is a winner. As easy as it is, academics and back-testing says it outperforms most money managers.
That’s why TEN devotes 400 weekly words or more on the subject; however, we calculate performance with our special recipe. Catching some sectors right after liftoff can lead to stocks before they head into orbit.
According to TEN’s rankings, the top sectors to fish in include:
- Retail – Wholesale
- Construction
- Aerospace (tie)
- Medical (tie)
We throw the all the best sector stocks into the top of the funnel and use other filters to have those companies that meet all of our criteria drip out. You see, there are two basic investment styles, fundamental and technical analysis.
Fundamental analysis looks at things like P/E ratio, book value, return on equity, dividend yield, and many more valuation metrics.
Technical analysis is the interpretation of patterns on charts to determine entry and exit point. The two camps tend to hate one another; kind of like Mets and Yankee fans or Cubs and White Sox fans. TEN attempts to marry the two as there are enough of both to impact stock prices.
After identifying the sector bull’s-eye, we narrow the list to our A & B graded companies. Next up, Top Equity screens for companies that were accumulated as measured by net cash into the stock. In other words, more shares were purchased than sold in the previous week.
Our technical grinder takes the remaining companies and picks those with “buy signals” i.e. stocks the charts say to invest in now. Finally, we compare the fundamentals of the few candidates left standing to invest in the best value.
In order to end up in the weekly sector review, a company must come from a top-performing industry, Wall Street is accumulating it, grade out with an A or B, exhibits buy now characteristics, and be fundamentally sound.
Kind of exhaustive, right Unfortunately, it doesn’t guarantee a 100% strike rate, but it surely puts the odds on your side.
The Home Depot, Inc. (HD) came out of the small end of the funnel after passing all of our tests. Yesterday, the home-improvement company’s shares zipped to a new 52-week high. As Investors’ Business Daily founder William O’Neil likes to say, “New highs tend to be followed by newer, higher highs.”
Fundamentally, the A rated company is sound too. HD trades with a forward P/E of 14.27, while analysts project earnings growth of 14.2%. A one to one ratio is as high as we are willing to go. We also like that Home Depot is valued at 85 cents for every dollar per share in sales. Less than one to one is a favorite of Wall Street guru Ken Fischer. And Warren Buffet would be impressed with HD’s return on equity of 20.04%.
Lastly, in a sign management is fairly confident in the company’s future, they rewarded shareholders with a 16% increase in the dividend. The 29 cent quarterly payout puts the yield at 3.2%. Try to find that at your bank.
Investors who take a position in Home Depot will own a blue-chip market leader with reasonable valuations. It is in the right place at the right time, has strong Earnings Power, and you get paid while you wait for the stock to pan out. It’s is an excellent combination of fundamentals and technical that could lead to out-performance on a total return basis.
Sector Selector: Stock Picking Made Easy is an article from: 
