Industry Rank Analysis 07-14-10
The big positive surprise by Intel is probably a good omen for the rest of the semiconductor industry, and the related semi-equipment industry. However, there were plenty of indications that things looked good for the industry even before Intel reported.
The various semiconductor industries are dominating the top of the charts, holding seven of the top 16 spots, and all based on data from before Intel’s announcement. That includes the top spot, the third spot and four tied for fifth place. In addition, a larger semiconductor industry was in 46th place, which is a very respectable showing for a large industry.
The Zacks industry classifications are very fine, with 256 different industries tracked. It is not particularly noteworthy if a single small industry shows up doing well — a single firm with good news can propel a one- or two-firm industry to the top of the charts. But it is interesting when you see a cluster of similar industries at the top of the charts.
Five of these “industries” are very small in terms of the number of firms in the, with three or fewer. The Semi-Equipment: Wafer industry had a perfect score with an average rank of 1.00, but that was a relatively easy accomplishment since it has only two firms in it. The Semi-Equipment Wafer Fab industry had a little bit of a tougher time since it had eight firms in it, but three of those hold the coveted Zacks #1 Rank (“Strong Buy”), and another four hold Zacks #2 Ranks (“Buy”).
Across the Zacks universe, only the top 5% of firms get a Zacks #1 Rank, and the next 15% get a Zacks #2 Rank. Thus, one would expect only 20% of the firms in an industry to hold either a #1 or a #2, yet combining these two very closely related “industries,” 90% make the cut.
In the semiconductors themselves, the Memory, Programmable Logic Device, Graphics, Communications and Analog industries all have very attractive average scores. During the recession, companies held back on capital spending, and a lot of capital spending these days goes into computers.
Computers don’t last forever and tend to get obsolete as technology advances. The good reviews for Windows 7, after the fiasco of Microsoft Vista, have also given firms a reason to upgrade the machines that their employees are using. Add in the rapid penetration of smart phones, and you have the makings of a strong rebound, if not a boom, in the semiconductor industry.
The tables below show the Semi-related firms from the industries mentioned above with Zacks #1 Ranks. Most of the names here are mid-caps, but there are a few small-caps available. For the most part, the valuations on these firms look very reasonable as well.
Number 1 Ranked Stocks
| Company | Ticker | Market Cap ($ mil) | P/E Using Curr FY Est | P/E Using Next FY Est | % Change Curr FY Est – 4 wk | % Change Next FY Est – 4 wk | Current Price |
| Cabot Corp | CBT | $1,781 | 11.7 | 11.15 | 10.54% | 7.54% | $27.24 |
| Du Pont (Ei) De | DD | $31,929 | 13.35 | 11.88 | -0.99% | -0.41% | $35.24 |
| Dow Chemical | DOW | $29,565 | 15.19 | 9.91 | 1.07% | 0.29% | $25.60 |
| Stepan Co | SCL | $711 | 13.46 | 10.93 | 8.75% | 27.17% | $71.07 |
| Sector | “This Week’s Zacks Rank ” |
“Week ago Zacks Rank ” |
“FY10 Revisions Ratio ” |
“FY10 Estimates Revised Up ” |
“FY10 Estimates Revised Down ” |
“FY11 Revisions Ratio ” |
| Transportation | 2.73 | 2.83 | 1.38 | 175 | 127 | 2.27 |
| Conglomerates | 2.79 | 2.88 | 0.81 | 13 | 16 | 0.55 |
| Auto-Tires-Trucks | 2.83 | 2.98 | 1 | 37 | 37 | 1.43 |
| Retail-Wholesale | 2.87 | 2.81 | 0.66 | 214 | 324 | 0.63 |
| Computer and Technology | 2.89 | 2.91 | 1.16 | 330 | 284 | 1.13 |
| Construction | 2.91 | 2.81 | 0.68 | 47 | 69 | 0.51 |
| Consumer Discretionary | 2.95 | 2.84 | 0.61 | 115 | 187 | 0.61 |
| Industrial Products | 2.96 | 2.98 | 1.09 | 97 | 89 | 1.01 |
| Basic Materials | 2.96 | 2.92 | 0.83 | 144 | 174 | 0.97 |
| Business Services | 2.99 | 2.94 | 0.68 | 78 | 114 | 0.62 |
| Aerospace | 3.03 | 3.05 | 0.5 | 12 | 24 | 0.68 |
| Medical | 3.05 | 3.06 | 0.55 | 151 | 274 | 0.59 |
| Finance | 3.07 | 3.06 | 0.63 | 433 | 683 | 0.56 |
| Oils-Energy | 3.08 | 3.1 | 0.6 | 282 | 472 | 0.54 |
| Utilities | 3.12 | 3.18 | 0.74 | 64 | 87 | 0.89 |
| Consumer Staples | 3.15 | 3.17 | 0.66 | 89 | 135 | 0.61 |
In evaluating the Zacks Industry Ranks, you want to see two things: a good overall score (low, meaning more Zacks #1 and #2 Ranked stocks than #4 or #5 Ranked stocks) and some improvement the relative position from the prior week. It is also helpful to understand exactly what the Zacks Industry Rank is.
The Zacks Industry Rank is the un-weighted average of the individual Zacks ranks of the firms in that industry. It does not matter if the stock is the 800 lb gorilla that dominates the industry or some very small niche player in the industry — they have the same influence on the industry rank.
Also, that means that the bigger the industry in terms of number of firms, the less influence any given company has on the industry rank. It also implies that small industries, with just two or three firms, should be the ones found at either the top or the bottom of the list. After all, if there are only two firms in the industry, it is relatively easy to get a Zacks rank of 2.00 (i.e. one with a Zacks Rank of #1 and the other with a #3). Right now, that industry rank would be tied for 6th place among the 255 industries tracked.
The same obviously goes for the bottom of the list as well. If there are 50 firms in the industry, and it ends up at one of the extremes, that means there has to be something pretty significant going on. Thus, I do not always focus on the very highest rated industries, but on the highest rated ones in which there are a large number of firms.
Click here for the Zacks Industry Rank List: http://www.zacks.com/zrank/zrank_inds.php
Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.
