What We Can Learn by Studying the Best of the Best ... and the Worst of the Worst

We’re almost halfway through the year, and as I alluded to on Friday, the performance derby isn’t even close.

Just look at this chart showing each of the 11 S&P 500 Index sectors, and how they’ve behaved year-to-date:

You can see Information Technology (tech) is blowing the doors off, up more than 19%. Health care is next at just over 15%, followed by the utilities at 11.4%. Meanwhile, energy is sucking wind with a 15-plus-percent loss in 2017. Telecommunication services is off by around 1%, while both financials and real estate are showing paltry gains of 2.7%.

But let’s take the analysis even deeper. Let’s evaluate which individual STOCKS are the “Best of the Best” … and which are the “Worst of the Worst” – and see what we can learn from the exercise.

This Stock Screener identifies the top-performing equities in the three best-performing sectors (IT, health care, utilities). I eliminated any stocks rated SELL (D+ or lower) by our Weiss Ratings model, as well as those domiciled outside the U.S. I also set a minimum market cap level of $50 million, a minimum 30-day average daily trading volume threshold of 50,000 shares, and a minimum price of $5.

You can see the results, sorted in descending order by year-to-date return as of late last week, below:

Data Date: June 1, 2017

It’s clear that the “All tech all the time” story holds for individual stocks, as well as the overall sector. Almost all of the 10 of the best-performing stocks year-to-date were in the IT industry, with the first healthcare name not coming into play until Lantheus Holdings (LNTH, Rated “C-”) at #9.

Market cap didn’t appear to play too much of a role here. While #1 stock Applied Optoelectronics (AAOI, Rated “B”) sported a capitalization of $1.3 billion, #2 stock Upland Software (UPLD, Rated “C-”) featured a capitalization of just $410 million.

Meanwhile, this Stock Screener does the opposite as my prior one. It lists the worst-performing stocks in the three worst sectors (energy, telecom, financials). I eliminated any stocks rated BUY (B- or higher) by the Ratings model, and used the same liquidity, size, and price parameters as before.

You can see the results, sorted in ascending order by year-to-date return as of late last week, below:

Data Date: June 1, 2017

Just like the other screener was all about tech, tech, tech, this one is all about energy, energy, energy. Nine out of 10 worst-performing stocks were in that sector. Only the financial name AmTrust Financial Services (AFSI, Rated “C-”) snuck in at #4 because accounting-related issues caused the workers comp insurer’s shares to plunge.

Again, market cap wasn’t an issue. Declining energy prices have crushed everyone from the $217 million oil and gas services firm Matrix Service Co. (MTRX, Rated “D+”) to the $2.6 billion producer Whiting Petroleum Corp. (WLL, Rated “D”).

In situations like this, your best bet is probably to do some research on the high-flyers in my Best of the Best Screener. Then buy a couple of your favorites using tight stops. That will allow you to ride the momentum higher as long as this bull trend continues, but get you out in the event of an unexpected reversal.

At the same time, try bottom fishing with a smaller stake in a couple of the names on my Worst of the Worst list. Avoid special situations like AFSI which involve the specter of accounting irregularities. Instead, consider more of a “field bet” on a turn in energy – and try to stick to the HOLD-or-better-rated companies.

Last but not least, did you secure your spots at the MoneyShows in San Francisco and Toronto yet? The San Francisco show runs from August 24-26, while the Toronto event goes from September 8-9.

I’ll deliver several presentations in those cities, and also take questions directly from investors like you. So don’t delay. You can register for San Francisco by clicking here and Toronto by clicking here. Or just call 1-800-970-4355 and let them know I referred you. It’s entirely free to attend.

Until next time,

Mike