The Collective Wisdom Of Wall Street

Includes: DIA, SPY
by: Jeff Gonion

Love 'em or hate 'em, analysts projections often reflect market sentiments and can directly stock movements. While 12-month price targets from analysts are notoriously optimistic, taken in aggregate they can provide insights into which sectors and industries analysts are the most (or least) optimistic about.

So let's take a look at the target prices for the major market sectors:

1Y Target Sector
18.1% Basic Materials
10.6% Healthcare
9.7% Industrial Goods
8.4% Technology
8.3% Services
7.0% Conglomerates
6.9% Consumer Goods
4.5% Utilities
2.5% Financial
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The table above shows the median analyst projected upside for the next 12 months for each sector, for mid and large-cap stocks that are covered by at least 4 analysts. This pretty-much looks like one would expect for a typical economic recovery, with the exception that financials are still dragging this time around.

If you're interested in oil, you can see which oil industries are expected to exhibit the most growth, for example.

22.7% Oil & Gas - Equipment & Services
20.2% Oil & Gas - Independent
18.8% Oil & Gas - Drilling & Exploration
10.8% Oil & Gas - Major Integrated
6.3% Oil & Gas - Refining & Marketing
4.9% Oil & Gas - Pipelines
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While this merely reflects conventional wisdom about these industries, it can be used to help direct further research into specific stocks within a given industry.

Other conclusions are less obvious. Take Consumer Goods. While alcoholic beverages normally do well, the analysts are currently more optimistic about soft-drinks:

7.9% Beverages - Soft Drinks
1.8% Beverages - Brewers
-0.7% Beverages - Wineries & Distillers
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In fact, the analysts aren't terribly optimistic about smoking, drinking, and "other recreation" in general, but they do seem to think we will be spending our money on cars, trucks, and footwear instead.

24.0% Auto Manufacturers - Major
23.3% Textile - Apparel Footwear & Accessories
22.5% Trucks & Other Vehicles
20.3% Rubber & Plastics
2.3% Recreational Goods, Other
1.8% Beverages - Brewers
1.5% Cigarettes
-0.7% Beverages - Wineries & Distillers
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Color me skeptical, but it seems unlikely that this will be the year everyone miraculously stops smoking ...

Within the Industrial Goods sector, it looks like heavy construction is projected to grow more than residential, which is reflective of the excess residential inventory.

20.4% Metal Fabrication
16.9% Heavy Construction
-2.7% General Building Materials
-3.6% Residential Construction
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If you think it's a good time to invest in banks, the analysts seem to feel that the U.S. banking industry still isn't healthy, and that you might want to consider foreign banks instead:

11.9% Foreign Regional Banks
3.4% Money Center Banks
1.7% Savings & Loans
-1.2% Regional - Northeast Banks
-2.2% Regional - Southwest Banks
-3.2% Regional - Pacific Banks
-3.6% Regional - Midwest Banks
-5.1% Regional - Southeast Banks
-5.9% Regional - Mid-Atlantic Banks
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If you think that real estate should be rebounding, the analysts prefer rest over work (don't we all?)

7.0% REIT - Diversified
4.9% REIT - Residential
4.6% REIT - Hotel/Motel
2.9% REIT - Healthcare Facilities
1.1% REIT - Office
1.0% REIT - Retail
0.2% REIT - Industrial
5.0% Property Management
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Utilities generally aren't known for growth, but the analysts feel that Water has more growth potential than others (although it comes with a lower dividend yield).

11.3% Water Utilities
5.2% Diversified Utilities
4.2% Gas Utilities
4.2% Electric Utilities
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Even if the analysts are ultimately wrong, they have more time and resources dedicated to researching these things than you do. So, whether or not you believe them, it's worth paying attention to the collective wisdom of Wall Street before you rush-off and invest in mid-Atlantic Regional banks, for instance, because your neighbor knows this guy ...

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.