You Can Still Buy Industrial And Technology Stocks, But Risk Controls Are Key

Stocks have a tendency to rally further than anybody thinks, and animal spirits could continue rewarding being long, but rules governing risk control will be key when the music stops, so investors ought to be planning exit strategies now, while the going is good. If they don’t, the risk of reacting emotionally to volatility could lead to whipsaw decision-making and losses.

Everybody’s investment style is different, but investment rules are a common theme among successful investors. Rules vary, but those governing risk control often focus on reducing leverage, shrinking position size, limiting losses, and hedging.

Fear of missing out, or FOMO, increases risk associated with a blow-off top, making hedging tricky. However, eliminating margin, raising cash, and selling second-tier stocks that are benefiting from market forces instead of business tailwinds could be wise.

Weekly, we gauge sentiment by measuring how many stocks are trading more than 5% above the 200-day moving average in our 1,500 stock universe.

Since we began crunching numbers on this measure in 2013, we’ve only eclipsed 50% three times: in January 2018, January 2020, and today. With 55% of our universe trading above this hurdle, pressing bets long could be a mistake.

Source: Top Stocks for Tomorrow.

That said, most investors should maintain long-term exposure to the market, and since up to three-fourths of stocks follow market direction, concentrating on the best stocks in the best sectors and industries can be smart.

Best sectors to buy

Weekly, our best and worst sector and industry ranking helps our members spot baskets under accumulation or distribution. By tracking shifts up and down these rankings, you can make sure you’re “fishing in the right pond” for ideas.

This week, industrials, technology, services, consumer goods, and healthcare are best in large cap. Consumer goods, technology, services, basics, and industrials score highest in mid cap, while the best small cap sectors are technology, basics, industrials, consumer goods, and financials.

Overall, REITs, utilities, and energy stocks score poorly, suggesting it’s best to sit on the sidelines in those groups until they move up in the ranking.

Source: Top Stocks for Tomorrow.

Considering sector strength by market cap can also be helpful for narrowing your hunting ground for new ideas. For instance, the following chart suggests mid cap consumer goods is a better hunting ground than small-cap consumer goods, and small cap REITs offer more opportunity for upside than large-cap REITs.

Source: Top Stocks for Tomorrow.

Top stocks to buy

Our system is objective because it’s quantitatively-driven. We rank every one of the institutional quality stocks in our database using a 7-factor model that’s explained more here. In short, the following factors determine scores:

  • Forward earnings growth expectations,
  • 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.

Because stocks tend to follow earnings over time, insiders buy for one reason; money flow reflects institutional sentiment, and seasonal patterns can rhyme, our highest-scoring stocks can be a great source of new ideas.

This week, we shared over 150 top-rated stocks with members, including these 100 high-scoring stocks worth considering for portfolios. For convenience, stocks making the biggest jump up in score from the prior week are highlighted.

Best Scoring 8/27/2020 4 WEEK MA
Company Name Symbol Sector INDUSTRY SCORE SCORE
BASIC MATERIALS
Enviva Partners, LP (EVA) BASIC MATERIALS LUMBER & WOOD PRODUCTION 105 107.50
The Sherwin-Williams Company (SHW) BASIC MATERIALS SPECIALTY CHEMICALS 100 100.00
The Scotts Miracle-Gro Company (SMG) BASIC MATERIALS AGRICULTURAL INPUTS 95 93.75
Ferro Corp. (FOE) BASIC MATERIALS SPECIALTY CHEMICALS 85 82.50
Cleveland-Cliffs Inc. (CLF) BASIC MATERIALS STEEL 85 76.25
FMC Corporation (FMC) BASIC MATERIALS AGRICULTURAL INPUTS 80 81.25
Air Products and Chemicals, Inc. (APD) BASIC MATERIALS CHEMICALS 80 82.50
Eastman Chemical Company (EMN) BASIC MATERIALS CHEMICALS 80 76.25
Compass Minerals International, Inc. (CMP) BASIC MATERIALS OTHER INDUSTRIAL METALS & MINING 80 75.00
PPG Industries, Inc. (PPG) BASIC MATERIALS SPECIALTY CHEMICALS 80 72.50
CONSUMER GOODS
Wolverine World Wide, Inc. (WWW) CONSUMER GOODS FOOTWEAR & ACCESSORIES 110 102.50
Simply Good Foods (SMPL) CONSUMER GOODS PACKAGED FOODS 110 107.50
Fox Factory Holdings (FOXF) CONSUMER GOODS RECREATIONAL VEHICLES 105 108.75
Constellation Brands, Inc. (STZ) CONSUMER GOODS BEVERAGES 100 78.75
National Beverage Corp. (FIZZ) CONSUMER GOODS BEVERAGES 100 98.75
The Procter & Gamble Company (PG) CONSUMER GOODS HOUSEHOLD & PERSONAL PRODUCTS 100 100.00
Bunge Limited (BG) CONSUMER GOODS FARM PRODUCTS 95 76.25
Tempur Sealy International, Inc. (TPX) CONSUMER GOODS FURNISHINGS, FIXTURES & APPLIANCES 95 97.50
Motorcar Parts of America (MPAA) CONSUMER GOODS AUTO PARTS 90 88.33
Archer-Daniels-Midland Company (ADM) CONSUMER GOODS FARM PRODUCTS 90 92.50
ENERGY
TC Energy Corporation (TRP) ENERGY OIL & GAS MIDSTREAM 100 82.50
USA Compression Partners, LP (USAC) ENERGY OIL & GAS EQUIPMENT & SERVICES 85 60.00
Hess Midstream LP (HESM) ENERGY OIL & GAS MIDSTREAM 80 82.50
MPLX LP (MPLX) ENERGY OIL & GAS MIDSTREAM 80 71.25
FINANCIALS
Royal Bank of Canada (RY) FINANCIALS BANKS-DIVERSIFIED 100 85.00
FactSet Research Systems Inc. (FDS) FINANCIALS FINANCIAL DATA & STOCK EXCHANGES 100 98.75
Intercontinental Exchange, Inc. (ICE) FINANCIALS FINANCIAL DATA & STOCK EXCHANGES 100 95.00
Brown & Brown, Inc. (BRO) FINANCIALS INSURANCE BROKERS 100 102.50
Assurant, Inc. (NYSE:AIZ) FINANCIALS INSURANCE-SPECIALTY 100 95.00
Mastercard Incorporated (MA) FINANCIALS CREDIT SERVICES 95 95.00
PayPal Holdings, Inc. (PYPL) FINANCIALS CREDIT SERVICES 95 93.75
Visa Inc. (V) FINANCIALS CREDIT SERVICES 95 91.25
Moody’s Corporation (MCO) FINANCIALS FINANCIAL DATA & STOCK EXCHANGES 95 92.50
MSCI Inc. (MSCI) FINANCIALS FINANCIAL DATA & STOCK EXCHANGES 95 92.50
HEALTHCARE
Medpace Holdings, Inc. (MEDP) HEALTHCARE DIAGNOSTICS & RESEARCH 105 107.50
Merck & Co., Inc. (MRK) HEALTHCARE DRUG MANUFACTURERS 100 81.25
Edwards Lifesciences Corporation (EW) HEALTHCARE MEDICAL DEVICES 100 97.50
Inspire Medical Systems, Inc. (INSP) HEALTHCARE MEDICAL DEVICES 100 96.25
LeMaitre Vascular, Inc. (LMAT) HEALTHCARE MEDICAL INSTRUMENTS & SUPPLIES 100 100.00
DexCom, Inc. (DXCM) HEALTHCARE DIAGNOSTICS & RESEARCH 95 97.50
Quidel Corporation (QDEL) HEALTHCARE DIAGNOSTICS & RESEARCH 95 97.50
AbbVie Inc. (ABBV) HEALTHCARE DRUG MANUFACTURERS 95 85.00
AstraZeneca PLC (AZN) HEALTHCARE DRUG MANUFACTURERS 95 93.75
Dr. Reddy’s Laboratories Limited (RDY) HEALTHCARE DRUG MANUFACTURERS 95 97.50
INDUSTRIALS
Arconic (ARNC) INDUSTRIALS SPECIALTY INDUSTRIAL MACHINERY 105 77.50
Old Dominion Freight Line, Inc. (ODFL) INDUSTRIALS TRUCKING 105 103.75
Trex Company, Inc. (TREX) INDUSTRIALS BUILDING PRODUCTS & EQUIPMENT 100 98.75
The Middleby Corporation (MIDD) INDUSTRIALS DIVERSIFIED MACHINERY 100 95.00
John Bean Technologies Corporation (JBT) INDUSTRIALS DIVERSIFIED MACHINERY 100 98.75
Republic Services, Inc. (RSG) INDUSTRIALS WASTE MANAGEMENT 100 91.25
Patrick Industries (PATK) INDUSTRIALS BUILDING PRODUCTS & EQUIPMENT 95 95.00
Illinois Tool Works Inc. (ITW) INDUSTRIALS DIVERSIFIED MACHINERY 95 96.25
Deere & Company (DE) INDUSTRIALS FARM & CONSTRUCTION MACHINERY 95 91.25
SiteOne Landscape Supply (SITE) INDUSTRIALS INDUSTRIAL DISTRIBUTION 95 97.50
REITS
Prologis, Inc. (PLD) REITS REIT-INDUSTRIAL 85 86.25
QTS Realty Trust, Inc. (QTS) REITS REIT-INDUSTRIAL 85 86.25
Iron Mountain Incorporated (IRM) REITS REIT-SPECIALTY 85 82.50
CoStar Group, Inc. (CSGP) REITS REAL ESTATE SERVICES 80 78.75
Monmouth Real Estate Investment Corporation (MNR) REITS REIT-INDUSTRIAL 80 82.50
PennyMac Mortgage Investment Trust (PMT) REITS REIT-MORTGAGE 80 81.25
Global Net Lease, Inc. (GNL) REITS REIT-OFFICE 80 77.50
Equinix, Inc. (REIT) (EQIX) REITS REIT-SPECIALTY 80 82.50
SERVICES
Churchill Downs (CHDN) SERVICES GAMBLING 110 113.75
CarMax, Inc. (KMX) SERVICES AUTO & TRUCK DEALERSHIPS 100 100.00
Americas Car Mart (CRMT) SERVICES AUTO & TRUCK DEALERSHIPS 100 102.50
Group 1 Automotive, Inc. (GPI) SERVICES AUTO & TRUCK DEALERSHIPS 100 103.75
Booz Allen Hamilton Holding Corporation (BAH) SERVICES CONSULTING SERVICES 100 95.00
Equifax Inc. (EFX) SERVICES CONSULTING SERVICES 100 101.25
IHS Markit Ltd. (INFO) SERVICES CONSULTING SERVICES 100 96.25
Comcast Corporation (CMCSA) SERVICES ENTERTAINMENT 100 98.75
Lowe’s Companies, Inc. (LOW) SERVICES HOME IMPROVEMENT RETAIL 100 100.00
Medifast, Inc. (MED) SERVICES PERSONAL SERVICES 100 97.50
TECHNOLOGY
Open Text Corporation (OTEX) TECHNOLOGY SOFTWARE-APPLICATION 105 102.50
Coupa Software Incorporated (COUP) TECHNOLOGY SOFTWARE-APPLICATION 105 101.25
Fastly, Inc. (FSLY) TECHNOLOGY SOFTWARE-APPLICATION 105 102.50
Black Knight, Inc. (BKI) TECHNOLOGY SOFTWARE-INFRASTRUCTURE 105 103.33
Ubiquiti Inc. (UI) TECHNOLOGY COMMUNICATION EQUIPMENT 100 97.50
Lumentum Holdings Inc. (LITE) TECHNOLOGY COMMUNICATION EQUIPMENT 100 96.25
NETGEAR, Inc. (NTGR) TECHNOLOGY COMMUNICATION EQUIPMENT 100 100.00
Fortive Corp. (FTV) TECHNOLOGY SCIENTIFIC & TECHNICAL INSTRUMENTS 100 102.50
ANSYS, Inc. (ANSS) TECHNOLOGY SOFTWARE-APPLICATION 100 96.25
Elastic NV (ESTC) TECHNOLOGY SOFTWARE-APPLICATION 100 98.75
UTILITIES
Brookfield Renewable Partners L.P. (BEP) UTILITIES UTILITIES-RENEWABLE 95 92.50
Public Service Enterprise Group Incorporated (PEG) UTILITIES UTILITIES-DIVERSIFIED 90 87.50
Ameren Corporation (AEE) UTILITIES UTILITIES-REGULATED ELECTRIC 90 85.00
Brookfield Infrastructure Partners L.P. (BIP) UTILITIES UTILITIES-DIVERSIFIED 85 66.25
CenterPoint Energy, Inc. (CNP) UTILITIES UTILITIES-REGULATED GAS 85 78.75
Dominion Energy, Inc. (D) UTILITIES UTILITIES-DIVERSIFIED 80 81.25


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Disclosure: I am/we are long MA, PYPL, INSP, DXCM, FSLY, ESTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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