Fastest moving groups
Excerpt from; “The Independent Investor Guidebook” by Bill Cara
To find the fastest moving groups, you must first find the fastest moving industries with common themes as to interest rates, commodity prices, or major economic factors. After you zero in on an industry group, next look at the sub-group stocks that Value Line or Standard & Poor's rates the highest considering fundamental, quantitative and technical factors.
Within each industry there are groups and sub-groups. For instance, within the consumer products and services industry there is the retail group, and within the retail group there are 15 sub-groups as follows:
(1) Men/General Apparel Gap (NYSE: GPS) Abercrombie & Fitch (NYSE: ANF) American Eagle Outfitters (Nasdaq: AEOS) Urban Outfitters (Nasdaq: URBN) Lands' End (NYSE: LE) Men's Warehouse (Nasdaq: MW)
(2) Women's Apparel Ann Taylor (NYSE: ANN) The Limited (NYSE: LTD) Chico's FAS (Nasdaq: CHCS) Bebe Stores (Nasdaq: BEBE) Cache Inc. (Nasdaq: CACH) Cato Corp. (Nasdaq: CACOA) Dress Barn (Nasdaq: DBRN) Intimate Brands (NYSE: IBI) Paul Harris (Nasdaq: PAUH) Talbot's (NYSE: TLB) Coldwater Creek (Nasdaq: CWTR) Guess? (NYSE: GES)
(3) Tween/Teen Apparel The Buckle (NYSE: BKE) Claire's Stores (NYSE: CLE) Pacific Sunwear (Nasdaq: PSUN) Gadzooks (Nasdaq: GADZ) Too Inc. (NYSE: TOO) Hot Topic (Nasdaq: HOTT)
(4) Department Stores May (NYSE: MAY) Kohl's (NYSE: KSS) Dillard's (NYSE: DDS) J.C. Penney (NYSE: JCP) Sears (NYSE: S)
(5) High-End Department Stores Neiman Marcus (NYSE: NMG.A) Nordstrom (NYSE: JWN) Saks (NYSE: SKS) Federated (NYSE: FD)
(6) Discount Stores Wal-Mart (NYSE: WMT) Target (NYSE: TGT) Kmart (NYSE: KM) Dollar General (NYSE: DG) Family Dollar (NYSE: FDO) Ross Stores (Nasdaq: ROST) T.J. Maxx/Marshall's (NYSE: TJX) Fred's Inc. (Nasdaq: FRED) ShopKo (NYSE: SKO) Value City (NYSE: VCD)
(7) Warehouse Clubs B.J.'s Wholesale (NYSE: BJ) Costco (Nasdaq: COST) Sam's Club (NYSE: WMT)
(8) Home Improvement Stores Home Depot (NYSE: HD) Lowe's (NYSE: LOW)
(9) Home Furnishings Ethan Allen (NYSE: ETH) Linens 'n Things (NYSE: LIN) Pier 1 Imports (NYSE: PIR) Williams-Sonoma (NYSE: WSM) Bed Bath & Beyond (Nasdaq: BBBY)
(10) Drug Stores CVS (NYSE: CVS) Duane Reade (NYSE: DRD) Walgreen Corp. (NYSE: WAG) Rite Aid (NYSE: RAD)
(11) Grocery Stores Albertson's (NYSE: ABS) Kroger (NYSE: KR) Safeway (NYSE: SWY) Whole Foods Markets (Nasdaq: WFMI)
(12) Electronics Retailers Best Buy (NYSE: BBY) Circuit City (NYSE: CC) Radio Shack (NYSE: RSH) Buy.com (Nasdaq: BUYX)
(13) Shoe Retailers Footstar (NYSE: FTS) Payless Shoe Source (NYSE: PSS) Venator Group (NYSE: Z)
(14) Books/Music Amazon.com (Nasdaq: AMZN) Barnes & Noble (NYSE: BKS) Borders (NYSE: BGP) Trans World Entertainment (Nasdaq: TWMC) Musicland (NYSE: MLG)
(15) Specialty/Other eBay (Nasdaq: EBAY) Michael's Stores (Nasdaq: MIKE) Starbucks (Nasdaq: SBUX) Sunglass Hut (Nasdaq: RAYS) Tiffany & Co. (NYSE: TIF) West Marine (Nasdaq: WMAR)
If people have jobs, they'll have money to spend. If they go shopping for women's clothes, maybe they go to Ann Taylor or maybe to The Limited. When they pop into a department store, maybe it's Sears, or JC Penny, May, Kohl's or Dillards (if they're all still around).
You get the point. Shopper's dollars go into cash registers that eventually falls to the bottom line, affecting stock prices.
It's pretty hard for one store in a sub-group to be having an awful time of it while a competitor is enjoying good fortune.
If you have decided, for example, that the consumer discretionary stocks are moving fast, or about to, then get confirmation from the chart patterns of other groups in the same industry.
For example, in the retail group, consumer spending increases ought to be impacting shoe retailers at the same time as music and book stores, which are different sub-groups.
Next look to other industries that also depend on the same basic market influences. For example, It's pretty hard for people to be buying automobiles if they aren't shopping at the department stores for big-ticket appliances.
Years ago, at a seminar for my money management clients, I held up two stock charts that covered a one-year period. I had removed the names of the stocks and the prices. Nobody could tell the difference. Using the overhead projector, I overlaid one on top of the other. My clients thought they were the same stock. One was Maytag; the other Ford.
My point was that when consumers start to spend on appliances, they will sooner or later start to buy cars, so if you anticipate a change in the trend of the auto manufacturers, it pays to get the confirmation from the appliance manufacturers (e.g., Maytag) and the entertainment appliance retailers (e.g., Best Buy BBY:NYSE).
Summary
If you expect your portfolio to beat the performance of the major market indexes, you have to be organized, with quick access to data that has been pre-screened. You have to be thinking in terms of industries, groups and sub-groups. You have to be watchful of changes in interest rates, consumer and business spending, and commodity prices on the vertical industries. Then, you have to look to see if the fundamental and technical data is consistent across groups and sub-groups and can be confirmed by stocks in other industries and groups that are linked in some way.
Investing is a process and your approach to it must be systematic.
Tuesday, November 25, 2003
Authored by: Bill
Cara
e-mail: billcara@traderwizard.com
