InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

$1,230 in Instant Income?

$1,230 in Instant Income?Our top income expert recently pulled the wraps off his breakthrough moneymaking technique. And he proved beyond a shadow of a doubt how you can use it to generate instant cash payouts of up to $1,230 (or more). Over and over again. But then he took things a big step further and guaranteed you can make $1 million by following his program. And the second he did, our phones went nuts! Space is limited — get the details here.

 

 

These Two Sectors are Poised to Outperform in 2018

By Jim Pearce on December 21, 2017

The stock market is so hot these days, it’s easy to overlook the merits of sector investing. After all, who wants to hear about the long-term merits of asset allocation? Most folks would rather brag about the quick profit they just made in a hot tech company.

But loading up on trendy momentum stocks may not be your idea of a good time. If so, then paying attention to sector performance can help you manage risk while generating consistent returns.

The S&P 500 Index is subdivided into eleven sectors (see chart below). Just as my IDEAL system can be used to score every stock in the index on a scale of 0 – 10, those same scores can then be combined to come up with an average IDEAL score for each index.

For the purposes of this exercise, I have omitted the Real Estate and Utilities sectors. That’s because they play by a different set of rules than most other stocks. But for the other nine sectors, my IDEAL system is a good judge of value.

Ranking the Sectors

You might guess tech stocks are the most overvalued. The tech-heavy Nasdaq 100 Index is up 32% over the past twelve months. But tech stocks are still fairly valued according to my IDEAL system with a sector score of 4.03. That is only slightly above the IDEAL score for the entire S&P 500 Index at 3.87.

You may be surprised to learn that Energy is the second best scoring sector with a score of 4.28.

It has been on a yo-yo the past three years due to extreme price swings in oil. It was the worst performing sector in 2014 and 2015 when oil prices plunged. It was number one in 2016 when oil prices finally bottomed out in the spring. But it returned to the bottom of the list through the first half of 2017, perhaps setting the stage for another banner year in 2018.

Here is what may surprise you. Healthcare nudges tech for the highest average IDEAL score at 4.31.

Healthcare was the worst performing sector in 2016, but it was second only to Information Technology through the first six months of this year. Barring a major change to the ACA in 2018, healthcare stocks should enjoy another solid year in the top half of the index.

Industrials Lose Strength

What surprised me is how overvalued the Industrials sector is compared to the others. Its IDEAL score of 2.59 is nearly a third lower than the index. That suggests it could be in for a tough year in 2018. Rising inflation and higher energy costs could squeeze profit margins for manufacturers next year.

Financials is the only other to have a score less than the index. That is unusual, in that most years at least 3 – 4 sectors score lower than the index. I’m not sure what that means, but it makes me nervous. It is also why I think you should think about which sectors you own the most of heading into next year.

To be clear, if the overall stock market goes through a correction then no sector will be spared.

But some will suffer more than others. The more overvalued sectors are likely to decline more than those that are undervalued. Longer term, rising interest rates may trigger a shift away from high-multiple growth stocks towards low-multiple momentum stocks. If so, then sectors that earn the highest scores for Relative Value should perform particularly well.

NOTE: You can see the IDEAL scores for every stock in the S&P 500 Index under the Data Tables tab of the Personal Finance website. 


You might also enjoy…

 

R.I.P Bull Market—Here’s How To Protect Your Wealth

I hope you’ve enjoyed the phenomenal bull market of the past eight years…

Because it’s about to come to a screeching halt.

The Federal Reserve’s nearly decade-long spending spree has finally come to an end.

With no other options left at their disposal, the Fed has no other choice than to raise interest rates to keep inflation in check.

And that leaves you with two options…

Do nothing and suffer the agony of watching the profits you’ve accumulated over the years evaporate right before your eyes…

Or reposition your portfolio and invest in companies which prosper as inflation rises and interest rates soar.

I think the choice is clear. And I’ll show you the best new positions you can take if you click here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.