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How to Create a Winning Portfolio From Top-Ranked Industries


Trump’s latest announcement of pulling out United States from the Obama-era Iran deal and reimposing powerful sanctions on the OPEC nation didn’t roil the stock market as expected. Then again, rising yields, a strengthening dollar and geopolitical uncertainty are continuously threatening the nine-year bull run.

Amid widespread volatility, it is difficult to make wise investment decisions. As such, honing in on corners of the market that are expected to outperform could serve us better. This can be easily done with the help of our powerful tool — Zacks Industry Rank.

Why Zacks Industry Rank?

As 50% of a stock's price movement can be attributed to the industry group it's in, an average stock in a strong industry is likely to outperform a great stock in a poor industry.

The Zacks Industry Rank is determined by calculating the average Zacks Rank for each stock in the industry and then assigning a rank to it. A top Zacks Industry Rank means that more stocks within that group are experiencing positive earnings estimate revisions.

The Zacks Industry classifies the business world into 16 sectors comprising 60 medium or M-level industries and 265 expanded or X-level industries. We rank all 265 X-level industries based on the earnings outlook of the constituent companies into two groups: the top half (i.e., industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).

So, if an industry has the best average Zacks Rank, it would be considered the top industry (1 out of 265), which would place it in the top 1% of Zacks Rank Industries. The top 132 Zacks Ranked industries would be in the top 50% of industries, whereas the bottom 133 Zacks Ranked Industries would be in the bottom 50% of industries.

While focusing on the stocks in the top Zacks Ranked industries will result in a winning portfolio, investing in highly ranked industries showing solid week-over-week improvement would further lead to outperformance. As a result, we focused on five such industries that that saw a huge rise in rank week over week and then picked the top-ranked stocks from that group.

Automotive – Domestic

It is currently ranked 17, placing it in top 7%, up from 73 last week.

General Motors Company GM is engaged in the designing, manufacturing and retailing of vehicles globally including passenger cars, crossover vehicles, and light trucks, sport utility vehicles, vans and other vehicles. The stock saw rising earnings estimate of five cents over the past week for this year and has a Zacks Rank #2 (Buy). It has a market cap of $51.2 billion.

Building Products – Maintenance Service

It saw a rank boost of 130 places to 63, putting it in the top 25%.

Limbach Holdings, Inc. LMB provides building systems. The company engineers, constructs and services the mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems. With a market cap of $96.2 million, LMB saw no earnings estimate revision activity over the past week for this year and has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Manufacturing – Tools & Related Products

It is also ranked 63, placing it in top 25%, up from 113 a week ago.

Kennametal Inc. KMT is a leading global supplier of tooling, engineered components and advanced materials consumed in production processes. Its earnings estimates have moved up by a penny for this year over the past week and has a Zacks Rank #2 with a market cap of $3.2 billion.

Business – Information Services

It saw a huge surge in its rank from 186 to 75, putting it in top 29%.

TransUnion TRU offers risk and information solutions primarily in the United States and internationally. It has a market cap of $12.6 billion and saw no earnings estimate revision in the past week for this year. TransUnion has a Zacks Rank #2.

Building Products – Heavy Construction

It is currently ranked 79, placing it in top 31%, up from 113 last week.

MasTec, Inc. MTZ is one of the largest providers of construction services to the telecommunications industry in the United States. It saw positive earnings estimate revision of a penny for this year in a week and has a Zacks Rank #2. Its market cap stand at $3.8 billion.

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