How Industry Group Rankings Can Help You Invest Smart

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It's no easy task to find winning stocks, but one way to give yourself an edge is by starting with IBD's industry group rankings.

Why worry about the industry group? Well, IBD's research has found that roughly half of a stock's move is driven by the strength of its respective group and its sector.

The rankings, starting today on Page B4 and continuing on B11, list the top-performing groups over the past six months in terms of relative price performance.

IBD has divvied up publicly traded companies into 197 different groups. That's hardly chopping up the market in a coarse fashion. In fact, it's dicing things up rather finely. The aim is to give readers more detailed insights in order to find the real market gems.

So instead of looking broadly at the medical sector, you get separate groups for hospital operators, device manufacturers, insurers, drugmakers and so on.

Which groups should you focus on? IBD has long advised looking at the top 20 industries, or maybe the top 40, as you search for stocks to add to your watch list.

But don't take this to an extreme. If you find a stock that has many, many stellar qualities, but its group ranking is just 50th, it can be smart to overlook that flaw. Maybe that particular group is rising fast up the ranks.

In addition, you can use the industry group rankings to help you steer clear of certain stocks. IBD suggests staying away from the bottom 20 industry groups.

The table next to this column offers an example of how you could use the industry group rankings to begin assembling a watch list of promising stocks. It lists five stocks from top-ranked groups.

Remember that in addition to picking top groups, you want to focus on the leading stocks within those groups -- which is what you have with this chart.

Note that each industry group name usually begins with the sector, followed by a hyphen and a more specific category. So for professional social networkLinkedIn ( LNKD ), the industry group is Internet-Content.

Don't forget to look also at how the broad sector is faring. IBD has divided the market into 33 sectors, and the No. 1 sector is listed first in the Research Tables, which start today on B5.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: LNKD

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