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4 Picks from Top 15 Zacks Ranked Industries Assure Gains

After tottering on shaky ground, the U.S. stock market took a deep dive in August. The month - touted the worst since May 2012 - saw the S&P 500 index falling 6%, thanks to the sputtering Chinese economy. But Europe with its sluggish economy and the U.S. with its indecisive Fed were no less responsible for the market volatility.

When China devalued its yuan last month, fears about the health of the second-largest economy after the U.S. led to a collective gasp. In the first half of the year, an inclement weather in winter, dismal earnings releases, and the Greek drama injected a fair amount of volatility in the domestic stock markets. Consequently, the Dow Jones lost 1.1% while the S&P 500 posted a meager gain of 0.2% in the first half.

The August mayhem caused further dip in the indexes, with the S&P 500 losing 6.7% and Dow Jones off 9.7% year to date. And there is nothing sweet about this September, either.

In a bleeding market like this, where the fear of losing is gripping investors, an investment call is tricky and tough. As the stocks hit the bottom, investors turn jittery and often falter on taking investment decisions. But despite the headwinds, investors with a long-term horizon can still make money in this market with the right approach - that is by selecting the right stock in the right industry. Notably, the U.S. economy is relatively stronger than the other markets around the world.

Though it is true that investors should invest in companies with strong fundamentals, the performance of a stock largely depends on the broader industry and economy. So instead of going over individual companies with a fine-tooth comb, it is the industry that should be placed under the microscope. Therefore, at this point of time, investing in a stock belonging to a high performing industry will be the right course of action.

Zacks Industry Rank

Among all industries big and small, finding the top-performing ones is not easy. We have used the Zacks Industry Rank to make our task fairly simple.

A top Zacks Industry Rank signifies that more stocks within that group are likely to see upward earnings estimate revisions, implying a bullish outlook for that industry.

Historically, we have found that the top 50% of Zacks-Ranked Industries outperform the bottom 50% by a factor of more than 2 to 1. So it's a good idea to leverage the Zacks Industry Rank to shortlist stocks.

The Zacks Industry classification divides the business world into 16 sectors comprising 60 medium or M-level industries and 260 plus or X-level industries. We rank all 260 plus X-level industries based on the earnings outlook for the constituent companies in each industry.

3 Superior-Ranked Industries to Invest In

We picked three industries from the top 15% with the help of the Zacks Screener. Each of these, namely Insurance Multiline, Insurance Accident and Health and Hospital are to a certain degree resilient to the current market turmoil and has been impressing with its stock performances. Also, each industry carries a Zacks Industry Rank of less than 35 from the group.

Now, let's take a sneak peek into the fundamentals of the chosen three:

Hospital: This industry is currently ranked #20 (within the top 8%) out of the 265 industries ranked by Zacks. The hospital sector is slated to benefit from the positive trends in the Medical/Healthcare sector.

Per the Centers for Medicare and Medicaid Services (CMS), total U.S. health care spending will grow by 5.7% on average annually through 2023 as a result of an increasing number of insured patients (due to the Affordable Care Act/Obamacare), faster projected economic growth and a growing population of the aged.

The industry players were also relieved by the favorable Supreme Court ruling on the subsidies given to the Federal-exchanges enrolled members. The case has turned out a net positive for the Hospital industry as its players will now be able to serve millions of insured patients, saving huge amounts set aside as provision for bad debts and charity.

Simultaneously, it will increase admission rates owing to improving affordability among patients. Moreover, an improving economy should lead to higher spending on health care facilities and improved profits for the hospital service providers.

Accident and Health Insurance: This industry is currently ranked #25 (top 10%) out of the 265 industries under Zacks Industry Rank. This industry is pretty much in focus with copious mergers and acquisitions recently announced. The industry which was already concentrated will shrink further giving birth to bigger players. It has also witnessed a huge makeover since the passage of the Affordable Care Act in 2010.

Although earlier dubbed as being oppressive, the reform came as a boon to the industry. While the individual insurance mandate has driven millions of customers to the players, the formation of online exchanges and Medicaid expansion also expanded their business by leaps and bounds.

Moreover, the industry has opened its doors to the international market which offers significant growth potential in untapped areas. Plus, the industry is reaping diversification benefits as it is branching out to analytics and health services which are complementary to its core business of health insurance.

Insurance Multiline: This industry is currently ranked #32 (top 12%) out of the 265 industries under Zacks Industry Rank. This group consists of property and casualty, and life coverage. The industry is eagerly waiting for an increase in interest rates which likely to soon come true. The players in this industry has borne the brunt of a prolonged low interest rate environment which has eaten into their investment income - the second most important component of total revenue after premium earned.

Now since most of the economic indicators point to an imminent reversal of interest rates, the players can breathe let out a sigh of relief. Moreover, insurance volume is expected to expand going forward with a modest strengthening of the key economic indicators such as employment, real estate and GDP.

Thanks to an improving economy, a number of carriers have already seen growth in insurance sales in recent quarters. Moreover, an already strong liquidity profile (due to a low catastrophe year), a conservative product design and better underwriting practices should lead the industry to an upside.

4 Stocks Worth Investing In

NMI Holdings, Inc.NMIH with a Zacks Rank #1 (Strong Buy) provides private mortgage guaranty insurance services in the United States.

The company is expected to generate revenues at a growth rate of 154.6% in 2015 compared with the industry anticipated growth rate of negative 48.4% and earnings per share at a growth rate of 38.7% compared with a negative 6.6% for the industry.

Moreover, in the trailing four quarters, the company delivered an average positive earnings surprise of 18.2%.

Universal Health Services Inc.UHS belongs to the hospital industry. Headquartered in King of Prussia, PA, Universal Health Services has a Zacks Rank #1. The company is expected to generate revenues at a growth rate of 10.8% in 2015 compared with the industry anticipated growth rate of 1.6% and earnings per share at a growth rate of 21.4% compared with 8.1% for the industry.

The stock has been witnessing positive estimate revisions over the past 60 days that led the Zacks Consensus Estimate to climb 6.5% to its present level of $7.02 a share for the current year.

UnitedHealth Group Inc.UNH , carrying a Zacks Rank #2 (Buy) belongs to the health insurance industry. The immensely diversified company is a top player in the industry and has been reporting strong earnings for the past several quarters.

The company is expected to generate revenues at a growth rate of 16.2% in 2015 compared with the industry anticipated growth rate of 1.6%. The earnings per share growth rate is also pegged higher at 11% than 8.1% for the industry.

The stock has been witnessing positive estimate revisions over the past 60 days, leading the Zacks Consensus Estimate to climb 1.1% to its present level of $6.33 a share for the current year. Moreover, over the last four quarters, the company delivered an average positive earnings surprise of 6.03%.

First American Financial CorporationFAF is a property and casualty insurer sporting Zacks Rank #1. It provides financial services through its subsidiaries and operates through the Title Insurance and Services, and Specialty Insurance segments.

The company is expected to generate revenues at a growth rate of 9.2% in 2015 compared with the industry anticipated growth rate of negative 48.4%. Its earnings per share growth rate of 27.9% compared favorably with negative 6.6% for the industry.

The stock has been witnessing positive estimate revisions over the past 60 days. This led to a 10.7% upward revision in the Zacks Consensus Estimate to its present level of $2.69 a share for the current year. Moreover, the company delivered an impressive earnings beat of 21.2% in the trailing four quarters.

Conclusion

Investor fear in a turbulent market cannot be disregarded. Instead, investors can immune their portfolio from uncertainty and loss. Of course, narrowing down on stocks from the top-performing industries will bring the added advantages of handsome returns and calm nerves.

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UNITEDHEALTH GP (UNH): Free Stock Analysis Report

UNIVL HLTH SVCS (UHS): Free Stock Analysis Report

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NMI HOLDINGS-A (NMIH): Free Stock Analysis Report

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


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

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