As we push deeper into December, small-cap stocks and mid-cap stocks could begin marching higher in line with the January effect, a period during which large cap typically lags as institutional investors use the year's fresh slate to restructure portfolios for greater returns. Although the Russell 2000 ETF (IWM) and S&P 400 (MDY) have outpaced the S&P 500 (SPY) in the first quarter over the past 10 years by an average 0.58% and 1.72%, respectively, there are plenty of large-cap stocks you can consider owning too. Read on to discover the best sectors, industries, and stocks to buy now.
The Top Sectors To Buy
Every week, we crunch data on over 1,600 stocks in order to spot sector leadership by market cap. Scores are based on forward earnings growth, historical trends in reporting earnings that beat Wall Street estimates, insider buying, short term and long-term institutional money flow, forward valuation relative to historical valuation, contra-trend short interest analysis, and quarterly seasonality over the past decade.
This week, the analysis indicates the best large-cap sectors are industrial goods (Weyerhaeuser Company (WY), Illinois Tool Works (ITW), Eaton Corp. (ETN)), financials (T. Rowe Price (TROW), Lazard Ltd (LAZ), State Street Corp. (STT), MarketAxess (MKTX), JPMorgan (JPM), consumer goods (Polaris Inc. (PII), McCormick & Co. (MKC), Kellogg Co. (K)), and services (Trinity Industries (TRN), Old Dominion Freight (ODFL), FleetCor Tech (FLT), Domino's Pizza (DPZ)). Focusing on those sectors should provide you with the greatest shot at "fishing in the right pond" when it comes to stock selection.
Meanwhile, you should be industry- and stock-specific in healthcare, which ranks neutral, and technology, utilities, REITs, and basic materials, which rank below average. Our individual stock and industry rankings further below can help you spot profit-friendly ideas in those baskets.
Are We At A Market Inflection Point?
The following chart provides insight into market inflection points, highlighting extremes in optimism or pessimism using the percentage of stocks in our research universe trading equal to or greater than 5% above or below their 200-day moving average.
This signal has been a very good proxy for actionable buy and sell signals. For example, extreme readings helped you lock in profits in early 2018 and buy risk into the end of 2018. Although readings can remain at extremes for weeks (and sometimes, longer), it makes sense to be cautious (no margin, focus on best names, sell laggards or broken thesis stocks) when the percentage of stocks 5% or higher above their 200 dma reaches 40% or higher.
Currently, 39.8% of our universe is trading 5% or more above their 200 dma, down from 42.8% last week when we suggested to members the possibility of a 3% to 5% pullback. At the low earlier this week, we were down about 2.5% from the S&P 500 high (as of this writing). We'll continue watching this measure closely in the coming weeks for additional, actionable insight.
The Best And Worst Scoring Large-cap Stocks
The next table shows the highest and lowest scoring large-cap stocks in our universe based on our methodology. Because stocks historically follow earnings over time, insiders only buy for one reason; money flow reflects institutional optimism or pessimism, and seasonal patterns often rhyme, these individual stocks have characteristics that are likely to be rewarded or punished from here. Stocks making the biggest jump in score this week to join our best list include Hormel Foods (HRL), McCormick & Co., Accenture (ACN), and Genuine Parts (GPC).
|LG CAP||4 Week MA|
|Centene Corp.||(CNC)||HEALTH CARE PLANS||110||97.5|
|AbbVie Inc.||(ABBV)||DRUG MANUFACTURERS||105||105|
|Domino's Pizza Inc||(DPZ)||FOOD WHOLESALE||105||95|
|FleetCor Tech||(FLT)||BUSINESS SERVICES||105||83.75|
|Hormel Foods||(HRL)||MEAT PRODUCTS||105||87.5|
|Int'l Flavors||(IFF)||SPECIALTY CHEMICALS||105||86.25|
|Kellogg Company||(K)||PROCESSED & PACKAGED GOODS||105||100|
|Lazard LTD||(LAZ)||ASSET MANAGEMENT||105||93.75|
|McCormick & Co.||(MKC)||PROCESSED & PACKAGED GOODS||105||78.75|
|Old Dominion Freight Line Inc.||(ODFL)||TRUCKING||105||97.5|
|Polaris Industries Partners||(PII)||RECREATIONAL VEHICLES||105||96.25|
|Trinity Industries Inc.||(TRN)||RAILROADS||105||97.5|
|T. Rowe Price Group||(TROW)||ASSET MANAGEMENT||105||103.75|
|Weyerhaeuser Co.||(WY)||LUMBER, WOOD PRODUCTION||105||92.5|
|Agilent Tech||(A)||SCIENTIFIC & TECHNICAL INSTRUMENTS||100||92.5|
|Accenture Ltd Bermuda||(ACN)||MANAGEMENT SERVICES||100||80|
|AutoDesk Inc||(ADSK)||TECHNICAL & SYSTEM SOFTWARE||100||83.75|
|Alaska Air Group||(ALK)||REGIONAL AIRLINES||100||95|
|Allstate||(ALL)||PROPERTY & CASUALTY INSURANCE||100||92.5|
|Ameriprise Finl Inc||(AMP)||ASSET MANAGEMENT||100||97.5|
|Amphenol Corp||(APH)||DIVERSIFIED ELECTRONICS||100||96.25|
|Alexandria R E Equities||(ARE)||REITS||100||91.25|
|Avery Dennison||(AVY)||PAPER & PAPER PRODUCTS||100||91.25|
|Autozone||(AZO)||AUTO PARTS STORES||100||97.5|
|Bank of America||(BAC)||MONEY CENTER BANKS||100||92.5|
|Booz Allen||(BAH)||MANAGEMENT SERVICES||100||85|
|Bristol-Myers Squibb||(BMY)||DRUG MANUFACTURERS||100||88.75|
|Capital One Fin'l||(COF)||CREDIT SERVICES||100||92.5|
|Campbell Soup||(CPB)||PROCESSED & PACKAGED GOODS||100||97.5|
|Carlisle Co's||(CSL)||RUBBER & PLASTICS||100||100|
|Dominion Resources||(D)||ELECTRIC UTILITIES||100||86.25|
|Eastman Chemical Co||(EMN)||CHEMICALS- MAJOR DIVERSIFIED||100||86.25|
|Eaton Corp||(ETN)||INDUSTRIAL ELECTRICAL EQUIPMENT||100||98.75|
|Gentix Corp||(GNTX)||AUTO PARTS||100||91.25|
|Genuine Parts||(GPC)||AUTO PARTS WHOLESALE||100||88.75|
|Hologic Inc||(HOLX)||MEDICAL APPLIANCES & EQUIPMENT||100||82.5|
|International Paper||(IP)||PAPER & PAPER PRODUCTS||100||92.5|
|Illinois Tool Works||(ITW)||DIVERSIFIED MACHINERY||100||100|
|Hunt J B||(JBHT)||TRUCKING||100||100|
|JPMorgan||(JPM)||MONEY CENTER BANKS||100||97.5|
|Magna Int'l Inc.||(MGA)||AUTO PARTS||100||92.5|
|Marketaxess Hldgs Inc||(MKTX)||INVESTMENT BROKERAGE||100||87.5|
|Ross Stores||(ROST)||APPAREL STORES||100||93.75|
|State Street Research||(STT)||REGIONAL BANKS||100||93.75|
|Sysco Corp.||(SYY)||FOOD WHOLESALE||100||92.5|
|Thermo Electron Corp.||(TMO)||CONGLOMERATES||100||86.25|
|Valero Energy Corp.||(VLO)||OIL & GAS REFINING & MARKETING||100||91.25|
|China Unicom||(CHU)||WIRELESS COMMUNICATIONS||15||13.75|
|GrubHub||(GRUB)||INTERNET INFORMATION PROVIDER||15||16.25|
|Transocean Offshore||(RIG)||OIL & GAS DRILLING & EXPLORATION||15||17.5|
The Top Large-Cap Industries To Buy
The best large-cap industries this week are trucking (ODFL) (JBHT) (KNX), management services (BAH) (ACN), healthcare plans (CNC) (WCG) (UNH) (CI) (ANTM), major chemicals (EMN) (FMC), and auto parts stores (AZO) (ORLY).
Taking this analysis further, we can determine the best and worst industries for investment ideas by sector.
- The best basket in basics is major chemicals.
- Concentrate on auto parts (Magna Int'l, Gentex Corp., BorgWarner (BWA)), processed & packaged goods (McCormick & Co., Kellogg Co., Campbell Soup), and trucks (Oshkosh Corp. (OSK) in consumer goods.
- Focus on diversified investments (Morgan Stanley (MS), Nasdaq (NDAQ), money center banks (JPMorgan, Bank of America, Bank of NY (BK), and investment brokers (MarketAxess (MKTX), Raymond James (RJF), SEI Investments (SEIC), Charles Schwab (SCHW), Goldman Sachs (GS) in financials.
- Healthcare plans, generic drugs (Mylan (MYL), and medical appliances (Hologic (HOLX), Medtronic (MDT), Align Tech (ALGN)) are top rated in healthcare.
- Industrial equipment (Pentair (PNR), Parker-Hannifin (PH)), industrial electrical (Eaton Corp., Rockwell Automation (ROK), Ametek (AME)), and general building (MDU Resources (MDU), Fastenal (FAST)) offer upside in industrial goods.
- The strongest scoring services industries are trucking, management services, and auto parts stores.
- Semi equipment (Teradyne (TER), Lam Research (LRCX), KLA Corp. (KLAC)), domestic telecom (AT&T (T)), and scientific & technical services (Agilent (A), Cognex (CGNX), Garmin (GRMN)) are top ranked in technology.
- Electric utilities (Dominion Energy (D), Southern Co. (SO)) can also be bought.
We'll be rolling our scores to reflect 10-year first-quarter seasonality later this month. Paraphrasing Twain, history rhymes so we'll be sharing our entire individual stock seasonality database with members by Jan. 1. In the meantime, baskets offering the strongest seasonal tailwinds (using exchange-traded funds as proxy) include agribusiness, technology, and semiconductors. Our ETF seasonality report including seasonal trends for 50 widely-traded ETFs will be available through our service next week.
The next table shows the best and worst industries, descending by score and sector. The greatest potential returns can be found in strong stocks, within strong industries, within strong sectors.