As the stock market continues to trade near its highs, Sabrient’s SectorCast-ETF model remains defensive, given its GARP (growth at reasonable price) focus. The top and bottom ranked sectors remain the same this week, but there was noticeable movement in the middle. In particular, Information Technology is dropping while Telecommunications rises.
Latest rankings: This week, Sector Detector tells us that Healthcare (XLV) continues to lead with an eye-popping score of 93 (on a scale of 100), powered primarily by its low aggregate projected price to earnings ratio for the constituent stocks. It also benefits from analyst upward earnings revisions and a solid trailing 12-month return on equity. Consumer Staples (XLP) solidified its place in the second spot with a strong score of 82. Top-ranked stocks within these sectors include Humana (HUM), CareFusion (CFN), Colgate-Palmolive (CL), and Dean Foods (DF).
Materials (XLB) continues to pull up the rear as the fundamentally weakest sector, scoring a dismal 26. It has the highest aggregate projected P/E and a negative trailing 12-month return ratios. Industrials (XLI) is again in ninth at 33. Low-ranked stocks within these sectors include Alcoa (AA), Vulcan Materials (VMC), Eaton (ETN), and PACCAR (PCAR).
In the middle of the rankings, Telecom (IYZ) has moved up three spots in the wake of several analyst upward revisions to earnings estimates—rising from a score of 42 last week to today’s 55. On the other hand, InfoTech (IYW) and Energy (XLE) both dropped two spots primarily due to an aggregate net reduction in analyst earnings estimates among their constituent stocks. The SectorCast score for IYW fell from 67 to 54, and XLE fell from 55 to 44.
These scores represent the view that Healthcare and Consumer Staples stocks may be undervalued, while Materials and Industrials stocks may be overvalued.
Performance: The table below shows the performance of each week’s portfolio as of the market close on Tuesday, 12/01/09. The top-ranked XLV has nicely outperformed the SPY, although the IYW has slipped a bit lately in relative performance.
You can see that the long/short ETF portfolio from the beginning of the month is still lagging the SPY badly, which can happen during strong momentum rallies in which the more speculative names lead the market. But more recent portfolios are holding their own against a straight long position on the market, illustrating that a sound absolute return approach can be effective in any market climate.
Disclosure: Author has no positions in stocks or ETFs mentioned.
