The Top Three Sectors Rated “Buy”
Long before the television show Mad Men introduced the world to Don Draper, there was real-life legend David Ogilvy, who bestrode midcentury Madison Avenue as an advertising god. Fictional ad genius Draper is loosely based on Ogilvy.
I recently re-read one of my favorite books, Ogilvy On Advertising (1985), and I came across this sentence: “Advertising people who ignore research are as dangerous as generals who ignore enemy signals.”
Those words also apply to investors. Making money in the market is about taking chances based on thorough research. Otherwise, you’re blindfolded and throwing darts at a board. With the first quarter of 2021 officially over, let’s see where research analysts are most optimistic and pessimistic as the second quarter gets underway.
The stock market’s persistent post-election rally generally reflects optimism. On Thursday, the Dow Jones Industrial Average rose by 171.66 points (+0.52%), and the S&P 500 climbed 46.98 points (+1.18%) to close above 4,000 for the first time. The tech-heavy NASDAQ rose by 233.23 points (1.76%), as bond yields continued to retreat from recent highs. The small-cap oriented Russell 2000 jumped 1.50%. U.S. markets are closed on Good Friday.
What the research tells us…
Overall, there are 10,374 ratings on stocks in the S&P 500. Among those ratings, 54.9% are rated Buy, 38.2% are Hold, and 6.9% are Sell, as of this writing and according to research firm FactSet, the data provider for Investing Daily (see chart).
That’s better than usual. Over the past five years, the average month-end percentage of Buy ratings is 51.3%, for Hold ratings 42.7%, and for Sell ratings 5.9%.
As you can see from the above chart, analysts are most bullish over the health care (61%), information technology (61%), and energy (61%) sectors. Analysts are most pessimistic over the consumer staples (44%), real estate (47%), and financials (49%) sectors.
With the public’s focus on health services because of the coronavirus, health and drug firms are poised to prosper in 2021 and beyond. Strong demographic trends related to retiring baby boomers and their future health care needs will make this sector attractive for years.
The global health care sector is vast and booming, as people around the world get older and sicker. In emerging markets, the rise of newly affluent middle classes also is fueling demand for medical services and drug treatments.
Immunotherapy is on the cutting edge of medical science, as researchers try to find ways to get the body to fight diseases by itself, eliminating the need for costly and painful techniques. Small biotechs with new immunotherapy drugs in the pipeline are poised for big gains.
The work-at-home culture fostered by the pandemic has been a boon for tech companies. Consumers are getting accustomed to these WiFi-enable capabilities, ensuring continued demand even after the coronavirus is vanquished.
Silicon Valley giants are poised to reap the spoils of a new economy that’s being born during quarantine, i.e. an accelerated adoption of mobile and virtual technologies.
To the surprise of many analysts, the energy sector has bounced back as energy demand and prices rise. Through mergers and acquisitions and cost efficiencies, many energy companies have repaired their balance sheets and gotten into leaner shape.
As the latest analyst ratings demonstrate, health care, tech, and energy are your three best sector bets right now. You should emphasize small-caps and value plays, two asset classes that are benefiting from sector rotation. As Mr. Ogilvy advises, listen to the research.
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John Persinos is the editorial director of Investing Daily. To subscribe to his video channel, follow this link.