E Stock Sector Report

Stock Sector Scores 

Auto parts (MGA, LEA, JCI) are the top industry across large cap.



Diversified machinery (IR, ITW, FLS, DOV, ITT, CMI) is strong.  Diversified computer systems (IGT, HPQ, IBM) are moving up into the important holiday season.  Lodging (H, HOT, MAR) offers upside on rising RevPAR.  Watch hotel capacity increases impact in 2014.  In the first 7 months, lodging spending is up 30% from 2012.  In September, RevPAR improved 3.6% year-over-year.  Diversified entertainment (DIS, TWX, VIA) benefits as content is leveraged across multiple platforms.

In large cap basics, industrial metals & minerals (ANR, ATI, CNX) are buys in our opinion.  Coal stocks are trading up in line with historical winter stockpile building and an improving steel outlook.  In consumer, auto parts, major food (ADM, MDLZ) and textiles (NKE, VFC) are buys.  Cotton prices have moved higher this year, averaging 91.5 cents per pound through September, versus 84 cents last year. However, cotton prices remain well below the 105 and 156 cents averaged in 2010 and 2011, allowing prior year cost rationalization to support margins.

In financials, we like insurance brokers (AON, MMC), credit services (MCO, DFS, SLM) and asset managers (AMP, PFG, BLK, BEN). Insurers continue to benefit from post-storm pricing power/demand. In healthcare, focus on biotech (GILD, CELG, BIIB), healthcare plans (CI, HUM, AET) and medical instruments (BDX, BCR, SYK).

The top industrials include diversified machinery, industrial equipment (PH, EMR) and aerospace/defense (BA, NOC, RTN, HON).  In services, lodging, diversified entertainment and railroads (CSX, NSC, CP) scored well. Year-to-date, U.S. rail carload volume is 1.3% higher than 2012.  Drug wholesalers (ABC, MCK,  CAH) are also strong scoring.  Drug volume growth benefits from new therapies and increasing utilization tied to aging boomers. Drug spending will grow 6.5% annually from 2015-2022.

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