Investing In Stocks Requires Picking The Right Industry, Sector

IBD tracks and analyzes an exhaustive list of 197 industry groups. How do you use this beefy information when investing in stocks?


Industry groups are simply combinations of companies in the same business. For instance, you will find all publicly traded restaurant companies in one group, and all airlines in another.

Some industries are broader in scope, so we break them down into their own niche areas. For example, chip companies fall into chip equipment makers, chipmakers or chip designers. The latter are in a group that goes by the awkward title of Electronic-Semiconductor Fabless, which refers to chip designers that don’t own chip fabrication plants.

The rankings are calculated based on six-month price performance of the stocks in each group, and the ranking is updated every day. It is published in IBD Weekly and the Data Tables at

With 197 groups, IBD offers a more granular look at industries than in other financial publications and research services. This gives investors a tool to better select stocks and ETFs.

Most of the time, the best-performing stocks are in the top 40 groups, and that’s where you should concentrate your research. It is also important to watch the groups that are rising in ranking. And if a group starts falling in rank, use that as a warning about the group’s leading stocks.

Investing In Stocks With Group Leaders

Decades of research finds that winning stocks tend to be the No. 1 or No. 2 stock in leading industry groups. Sounds like a lot of work to determine that, but IBD Stock Checkup does the calculation for you. Look up any stock on this tool, and it will tell you the top few leaders in the group based on IBD ratings. A few groups could have multiple leaders.

Industry groups should not be confused with sectors. While industries are narrow in scope, sectors are much broader and include multiple industry groups. The transportation sector, to name one, includes rail, trucking, shipping, airline, air freight, logistics and transportation equipment industry groups.

Generally, leading stocks are in the top five or six sectors, but the industry group action is more useful for investing in stocks.

Investors who trade ETFs can use industry group and sector data to make picks. This is a good strategy when a group performs well but there are no great leaders in it. Most regional banks are thinly traded, but you can invest in the industry with an ETF such as SPDR S&P Regional Banking ETF (KRE).

This article was originally published Jan. 3, 2020. Juan Carlos Arancibia is the Markets Editor of IBD and oversees our market coverage. Follow him at @IBD_jarancibia


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