industryinvest

Sometimes investors like to find an industry first, then look at the stocks that are in it. The Internet is a current favorite. It's a broad term that takes in content, software and services. It would be helpful if there were a place that gave you the stocks that make up an industry and then a ranking of those stocks by what analysts think of them. No surprise that there is such a site. Check it out at Yahoo!Finance's Industry Research site.

Go to the Yahoo!Finance main page (http://quote.yahoo.com), then look under the heading of Research. You'll see By Industry as an option. Click on it and you'll go to a page that lists about 80 industry groups, from Advertising to Wire and Cable Products. Then click on an industry link. I'll use the Internet. That takes me to the Internet grouping which has three subsets: Internet Content, Internet Services, and Internet Software. So if I'm thinking about investing in the Internet stocks, this shows me there are at least three different ways of doing it: through direct content providers; through service providers that allow access to the Internet; and through the software companies that make the Internet work.

Of course, sometimes the heading is very broad and the stocks included are very diverse. It's not a pure science, but it does give you a good starting point for finding the strongest stocks in a group as well as links to much more detail on a stock. For example, if I'm trying to find the stock that is highest rated by the analysts in the Internet Providers category, I click on Internet Providers. That brings up a page that lists all the stocks in the group in descending order, from the stock that has the highest consensus average recommendation from all the analysts who follow the stock. The ranking is on a scale from 1 to 5 with 1 being the highest.

The first stock listed of the 39 in the group in the current week is Worldgate Communications. By looking across the line, I get the symbol of the stock, the latest quarter's earnings per share, the expected EPS for this quarter, the average consensus recommendation, and the links to: Chart, News, SEC filings, Profile, Research and Message Board on the stock.

The symbol for Worldgate is WGAT, and it's in blue, linked to a Detailed report of the stock which includes the current quote, the p/e ratio, the bid, the ask, market cap, a small chart and many other helpful bits of data that can help you determine if the stock deserves more of your time. If it does, then go Back to the previous page and look at the quarterly earnings estimates, and look at the average recommendation for the stock. In this case, WGAT had a recommendation of 1, the highest rating.

The rating is derived from adding up the recommendation from each analyst and then dividing that total by the number of analysts in the survey. For example, if the stock had a 1 rating, then each analyst had to give it a 1 rating, meaning they are all recommending it highly. If a stock has a 1.4 rating, then some of the analysts are giving the highest rating and some are below that. The more analysts who follow the stock, the more difficult it is for the stock to get a 1 rating since it would mean a consensus view and that rarely happens. You'd like to focus on stocks that are rate above 2.0 since they are the ones with the Buy and Strong Buy ratings by the analysts. If you're a contrarian investor, you might spend time on the stocks rated below 3, but you'll spend a lot of time trying to find some jewels in there.

To the far right of the line are the links to more info. By checking into each one of the links, you'll get a full picture of the stock, and that includes the Message Boards. While there is a lot of junk on the boards, there is also a great deal of insight. Many of the boards are posted by knowledgeable investors or employees in the industry or even the company itself. Sometimes you'll find expert commentary that won't be anywhere else. The boards are much like digging for gold: you have to sift through a lot of dirt to get to the nuggets, but there are some in there.

The Industry site is a great way to find the strongest stocks in any industry group or subset of the group. It can help you diversify your portfolio by picking stocks that are definitely not in the same industry. The next time you're thinking about investing in a new sector of the market, check this site for which companies are rated the best by the analysts who follow them.

1999-07-04 Industry Investing