Want to find winning stocks? You might want to start by finding the top industries and sectors.
Decades of research into the most successful stocks found that 37% of a stock's price move comes directly from the performance of its industry group. Another 12% is due to the strength of its broader sector. In other words, nearly half of a stock's performance can be traced to the segment of the economy in which the company operates.
Those were important findings that IBD founder William O'Neil made in crafting his groundbreaking study on winning stocks. A smart investor identifies the top stocks in the top industries. And IBD tools are designed to do just that.
Long before stock tables disappeared from the financial pages of many newspapers, IBD restructured its tables by market strength.
How To Buy Stocks: Using The Tables
Broken up into 33 sectors, the IBD Smart NYSE + Nasdaq Tables are organized by aggregate performance of each sector's stocks. This performance is measured over multiple time periods.
Each company in the sector is listed alphabetically, with one key exception. If there's a true standout in the sector, it is shown at the top of the sector listings and is crowned an IBD Sector Leader.
Few stocks are strong enough to earn such a distinction. In 2023, that number was usually fewer than a dozen and sometimes only a couple. Because of their unusual strength, investors should study these leaders when the market is acting well.
The best stocks tend to be in the top five or six sectors, research shows.
You can find a more granular look at the market with IBD's 197 industry groups. These are sorted by each group's price performance over the past six months. To better understand industry shifts, the table shows each group's rank in the previous three and six weeks. There's also a year-to-date percentage change.
How To Find Industry Leaders
Generally, you want to buy the top one or two stock in a well-performing industry group. Don't buy a stock just because an industry peer is doing well.
This is where another IBD tool — the IBD Stock Checkup — is your guide. It tells you where the stock ranks within its group in terms of IBD Composite Rating, EPS Rating and other ratings. The Checkup also gives some basic industry data.
The stock quotes at Investors.com also show the stock's rank within its industry.
How To Buy Stocks: Other Key Points
Here are other ways to study industry leaders in top groups:
- You'll increase your odds of success if you focus you research in the top 40 groups, or even the top 20.
- Sometimes a strong stock breaks out of the pack to become a leader in a weak industry. Such lone wolf stocks should not be ignored.
- The Group Composite Rank, roughly speaking, is the average Composite Rating of the better stocks in the group.
- Groups With Highest % of Stocks at New High contains the industries with the largest portion of their member stocks making 52-week highs. You can use this to spot concentrations of strength. The list is updated daily.
- The New Highs List helps you find stocks making 52-week highs. It's organized by sector, which makes it a good way to spot strong areas of the market.
- The Group Relative Strength (RS) Ratings is just another way of expressing industry rank. A+ ratings represent the top rung of groups.
- You can also look up which sector an industry belongs to with the Find Your Group's Sector table at Investors.com.
