For immediate release
Chicago, IL – April 4, 2022 – Today’s Zacks Investment Ideas feature highlights Service Corporation International SCI.
How to Determine Which Industry Groups Dominate the Market
Like animals in the wild, stocks tend to move in groups. The importance of identifying key industry sectors and groups is well documented. Quantitative research studies suggest that about half of a stock’s future price appreciation is due to its industry group.
Starting with this top-down approach not only allows us to narrow down the investment universe, but also guides us to stocks with the best profit potential. Once we start regularly viewing the stocks of major industry groups, we will begin to notice that these stocks will continually reach new heights as they have strong backing from their leading industry.
By focusing on the best performing industry groups, we benefit from a constant ‘tailwind’ to our investment success. A great place to start is to identify leading industries and buy one or two top performers from each industry group. The length of time an industry group remains a leader can vary from several months to a year or more.
So how do we identify leading industries?
The Nasdaq officially entered a bear market in early March, but quickly reversed course after a record intramonth rise that marked the history books. The tech-heavy index remains in correction territory but appears to be on its way back to test its previous highs.
The formation of a bear market bottom normally begins with signs of accumulation in certain industry groups and sectors. Using a combination of fundamental and technical analysis helps us steer towards the leading groups. For example, we can determine that a specific industry has outperformed the market over the past year while containing stocks that are experiencing positive earnings estimate revisions – the most powerful force in stock investing.
Industry groups with a good number of stocks reaching new highs after bottoming out in the market will often be the leaders. Often these stocks will bottom out before the general market and start to break out long before the major indices.
Let’s take a current example. The Zacks funeral services industry group is currently ranked in the top 2% of approximately 250 industry groups. This group has outperformed the S&P 500 over the past year and its constituents are all seeing positive earnings estimate revisions.
Investing in funeral businesses is nothing new as these businesses have been around for a long time. Funeral homes are businesses and provide a service to those who need it, just as businesses in different industries provide a product or service to customers who need help.
And while investing in funeral businesses can be controversial and lacking in enthusiasm, there’s a reason they outperform the market. The industry group is showing historic sales growth, dividend increases and above-average earnings growth.
It’s not too hard to see why these companies probably still have some wiggle room. Let’s take a look at a top individual stock contained within this top group.
International service company
Service Corp. International is North America’s leading provider of death care products and services. Based in Houston, TX, SCI operates through its funeral and cemeteries segments. SCI provides professional funeral services, including use of facilities and motor vehicles, cremation, memorial, and catering services. The company markets its Dignity Memorial® brand which provides assurance of exceptional quality, value and customer service.
A Zacks No. 2 (buy) stock, SCI has seen a tear in terms of earnings beats recently – with an average surprise of +43.8% over the past four quarters. The company has exceeded earnings estimates in each of the past seven quarters. The funeral service provider recently posted fourth-quarter EPS of $1.17, a surprise +17% from consensus estimates. SCI shares followed suit, rising nearly 32% over the past year.
Analysts covering the business have raised their estimates for the current quarter by +4% in the past 60 days. The Zacks consensus estimate now stands at $1.04. SCI is expected to report first quarter results on May 2n/a.
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Past performance is not indicative of future results. The potential for loss is inherent in any investment. This document is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold any security. No recommendation or advice is given as to whether any investment is suitable for any particular investor. It should not be assumed that investments in the securities, companies, sectors or markets identified and described have been or will be profitable. All information is current as of the date hereof and is subject to change without notice. The views or opinions expressed may not reflect those of the company as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management of securities. These returns come from hypothetical portfolios composed of stocks with Zacks Rank = 1 that have been rebalanced monthly without transaction fees. These are not the returns of actual stock portfolios. The S&P 500 is an unmanaged index. To visit https://www.zacks.com/performancefor more information on the performance figures displayed in this press release.
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