E Weekly Report

Returns for our weekly best scoring by market cap:  Buy and Hold 1 Year, 0% turnover

 

•  The best sector is industrial goods
•  Focus Picks: ASBC & LII

 

 

The top sector overweight remains industrial goods heading into the final weeks of 2013.

Healthcare, services, consumer goods and financials also score high.  In healthcare, focus on large and mid cap.  In services, concentrate on large and small cap.  Across consumer goods, buy mid cap.  And in financials, own large and small cap rather than mid cap. 

Technology, basic materials and utilities continue to score below average.
 

The following chart visualizes score by market cap and sector.

This next chart shows historical average scores for our 1800 company universe and a comparison of the SPX to our scores historical trend.
 

In large cap, concentrate on asset managers, aerospace/defense and healthcare plans.  In mid cap, the best industries are drug makers, small tools and specialty chemicals.  The top scoring small cap industries are consumer services, metal fabrication and home healthcare.
 

Industrial Goods

The following industrial goods stocks offer the best seasonality for the 3-month period beginning December and ending February 28th.  Aerospace related companies (HON, CAE, CIR) are well represented.
 

 

 Among the top scoring industrial goods companies are aerospace/defense and diversified machinery (MIDD, TWIN, PLL).  Aerospace/defense sand suppliers benefit from rising OEM plane production and optimism over Washington budget negotiations.  Diversified machinery benefits from rising manufacturing activity and signs of European manufacturing recovery.   Broadly, demand for equipment, machinery, tools, and construction services benefit as residential construction growth spreads into commercial.  In October, construction spending came in 5.3% higher than a year ago, bringing year-to-date construction spending 5% above 2012.  Non-residential construction spending growth has been led by lodging, commercial, transportation and manufacturing over the past year.  Europe remains a wildcard for potential growth in 2014 as analysts’ under-model potential recovery.
 

Healthcare

The following healthcare stocks offer the best seasonality for the 3-months ending February.   Healthcare strength shifts more to medical appliances and instruments than biotechnology.
 

 

The following are the highest scoring healthcare companies this week.  Specialty drug manufacturers (UTHR, QCOR, ALXN) are well represented and benefit as specialty drug pricing and label expansion provide revenue upside.  IMS projects global drug spending will climb from tepid <3% growth to a compounded 3-6% annual rate over the next five years, led by specialty drug spending which is forecast climbing 38% to $230-$240 billion in 2017.
 

Services

The following services stocks offer the best seasonality through the end of February.  Discount brand retail is strong (ROST, TJX).  Auto dealers (KMX) offer upside, with manufacturers recording their best monthly sales in over six years.  Autodata estimates sales reached a 16.4 million annualized run rate in November, increasing 8.9% year-over-year.   U.S. light vehicle sales are 8.3% higher year-to-date than in 2012, according to Ward’s.

 

The strongest services industries include railroads (TRN, CSX, ARII) and truckers (HTLD).  In November, U.S. intermodal rail carloads were up 7.8% from a year ago, helping total carloads increase 1.3% from last year.  The biggest year-over-year growth came from grain and petroleum shipments.  Motor vehicle carloads were also up 10.8%.  Excluding coal, U.S. rail carloads were up 5.3% from 2012 in November.    

 
 
Consumer Goods

The following consumer stocks have the best seasonality through February.
 

 

Across consumer, focus on auto parts and textiles.  Inventory turns support retail restocking while cotton prices remain margin friendly.  In November, cotton “A” index prices fell to 84.65 cents per pound from 89.35 cents per pound in October, marking the third consecutive month of declines.
 

Financials

These three financials provide the best seasonal tailwinds through February.

 

In financials, buy asset managers (AMP, PJC) and regional banks (FFIN, OZRK, TBBK).  Asset managers benefit from equity driven AUM growth and rotation into higher fee products and out of lower fee fixed income.  Regional banks loan growth focus is migrating from C&I loans to consumer loans.  Profits at banks are set to climb further as excess deposits are converted into loans.