Follow the Money: What Weiss BUY/SELL Ratios Tell Us About Sector Strength, Weakness

Follow the money. That’s what the tipster code-named “Deep Throat” told Bob Woodward and Carl Bernstein when they were reporting on the Watergate scandal.

But that advice applies in investing, too. If you can figure out where big-money investors are directing their capital, and invest alongside them, you can generate significant profits for yourself. That’s where the Weiss Ratings buy/sell ratios can help.

What do I mean? Well, you’re probably familiar by now with our overall ratings distribution tables and statistics. Through last Wednesday, for instance, the BUY universe rose by 1 stock to 1,188. That followed a strong performance in the prior week when it was up by 15.

SELL stocks continued the downward trend, dropping by 3 stocks to 5,296 last week, after being down by 4 a week before. HOLD stocks were up by 11, with the total at 2,999.

But using our vast database, we’re able to dive deeper and analyze changes in the ratio of “Buy”-rated stocks to “Sell”-rated stocks over time. More specifically, we just looked at how those ratios changed over the past year for each of the 11 sectors of the S&P 500. The idea? Identify which sectors were seeing gradual trend improvement or deterioration over the course of 2016.

What’s striking is how much things have changed in certain sectors since earlier in the year. The buy/sell ratio in the utilities sector was just 0.76 in January 2016. That means there were fewer buys, as a percentage of the total universe of stocks in the sector, than there were sells, also as a percentage. Comparing results this way gives us a pure-play way to see whether our model is leaning more bullish or bearish.

The higher the number, the more bullish the model on a given sector. And sure enough, as the outlook for utilities brightened, that ratio climbed as high as 1.07 in June. But when interest rates rose and investors began to question the excessive sector valuations, the ratio sank, hitting 0.82 this month.

Then there’s real estate. Standard & Poor’s only spun it out as its own sector in September. But in the short time since then, that sector’s buy/sell ratio has slumped from 1.07 to 0.89.

The financial sector is showing a completely different trend. The ratio there fell from 0.74 in January 2016 to as low as 0.54 in March. But then it rose steadily, and just hit a 2016 high of 0.95. The industrial sector ratio dipped as low as 0.24 in March too. But it just hit a 2016 high of 0.37. Most other sectors have been relatively stable, though information technology and consumer discretionary are perking up a bit from their yearly lows.

The lesson for investors? If you’re looking for places to put your money, our Weiss Ratings suggest stocks in the financial, materials, IT, and consumer discretionary sectors appear fundamentally attractive. Barring some unexpected change in trend, stocks in the utilities and real estate sector appear less so.

Want to drill down into those winning sectors to find the highest-rated stocks with the most potential to reward you? Then make sure you sign up for Weiss Ratings Platinum.

With a Platinum subscription, you’ll get access to our premium stock, ETF, and mutual fund screening tools. They allow you to filter all 39,194 stocks, ETFs, and mutual funds in our universe by sector, rating, fundamental strength, technical momentum, and more. Click here  for more details and to sign up.