Sam Stovall's Sector Watch February 25, 2009, 12:01AM EST

Auto Retail Stocks: Too Far, Too Fast?

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automobile retailers will continue to be hurt, in S&P's view, by reduced access to credit, and higher borrowing rates for dealers and consumers, as well as by intense competition that has squeezed sales and margins. Those that had the highest concentration of domestic brand sales fared worst, besides those heavily exposed to weak housing markets like California and Florida.

So, there you have it. The group's relative strength appears unsustainable, and S&P has a negative fundamental outlook. Therefore, S&P believes this group may experience a slowing in market outperformance in the months ahead.

Industry Momentum List Update

Here is this week's list of the subindustries in the S&P 1500 with Relative Strength Rankings of 5 (price changes in the past 12 months that were in the top 10% of the S&P 1500), along with an index component with the highest S&P STARS (tie goes to the issue with the largest market value).

Subindustry Company Ticker S&P STARS Rank Price (2/20/09)

Automotive Retail O'Reilly Automotive ORLY 4 $33

Biotechnology Genzyme GENZ 5 $72

Brewers Molson Coors TAP 4 $36

Distillers & Vintners Constellation Brands STZ 4 $14

Education Services Apollo Group APOL 4 $80

Environmental & Facilities Services Waste Management WMI 4 $29

Gold Newmont Mining NEM 2 $44

Health Care Services Express Scripts ESRX 5 $56

HyperMarkets & Super Centers Wal-Mart WMT 5 $50

Insurance Brokers Aon Corp. AOC 4 $39

Packaged Foods & Meats Kraft Foods KFT 5 $24

Pharmaceuticals Abbott Laboratories ABT 5 $54

Restaurants McDonald's MCD 5 $55

Water Utilities Aqua America WTR 3 $19

Source: Standard & Poor's Equity Research

Stovall, the chief investment strategist for Standard & Poor's Equity Research Services, is the author of the forthcoming book The Seven Rules of Wall Street: Crash-Tested Investment Strategies That Beat the Market.

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