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Highest Rated Sectors: Did Analyst Get It Right ?

Posted by rantaboutit on March 13, 2007

What are we looking at here ?
The most popular S&P 1500 groups. The table is self explanatory, so i will just point out few interesting things. The first column is the list of sectors most recommended by the Wall Street Analyst. The sixth column gives the overall percentage of buy recommendation. The last column is the stock that is most favored in that particular sector. As you can see Contruction Materials topped the table with 61.1% buy recommendation. Analyst are most bullish on Vulcan Materials Company VMC.

Construction Material Sector
Vulcan Materials Company VMC is currently trading at $116.01

  • P/E = 24.76 (ranked #2 in the construction materials sector)
  • EPS = 4.69
  • PEG =2.31 (ranked #2)
  • Dividend = 1.50% (ranked #9)
  • Market Capital = $11.02 billion (ranked #2)
  • Analyst recommendation of 1.4/5.0

All in all, pretty impressive record. Add to that their 1-year return was whooping +49.75%. No wonder analyst love it. Construction Raw Materials sector performance ? Last one year returns was +25%. Pretty neat…Analyst got it right.

Consumer Finance Sector
Second best is Consumer Finance according to all the analyst. Highest rated in that group is American Express Company AXP which is priced at $54.75.

  • P/E = 18.29 (ranked #11 in the consumer finance sector)
  • EPS = 2.99
  • PEG =1.28 (ranked #9)
  • Dividend = 1.00% (ranked #14)
  • Market Capital = $65.28 billion (ranked #1)
  • Analyst recommendation of 2.0/5.0

AXP has a huge market capital and ranked #1 in their sector. P/E and PEG all look good. But what matters the most for the investors is returns. Their 1-year return was a lousy +0.96%.
Consumer Finance sector performance ?
Last one year returns was -1.65%. Pretty lousy…Analyst got it wrong.

What did we prove here ? Analyst do not get it right all the time. However at times they do not get the credit they deserve. Predicting stock markets is no easy task, especially with multiple factors affecting the stock movement. I checked out 1-year returns for all the listed sectors in the table above. 8 out of 10 were positive. Noteworthy were Water Utility with +25.94% returns, Aero & Defense with +23.01% and Energy Services with +15.21% returns.

Conclusion: Bashing the analyst for getting is wrong is always one of the favorite things to do for all kinds of investors. You and me need to understand that analyst do not get it right all the time. Obviously they wont. Otherwise they would have made billions and billions of dollars at the stock market. Analyst opinions & recommendations can be a good guide for investors to dig deep into the company stock. But it should not be used as an indicator to trade stocks. That brings us to the million dollar question. Are you going to trust the analysts and buy the stock/sector they are most bullish on ?

Recommended Books:

(Source: TickerSense)

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