One of the industries recently piped into the rankings is Industrial Gases, which is followed analytically by S&P's Richard O'Reilly. With investors placing their bets on a recovery in manufacturing, it wouldn't be surprising to see these stocks benefit.
Industrial gases are used in a wide range of manufacturing activities, including metals and metal fabrication, chemicals processing, petroleum refining, electronics, food and beverage, and health care. And O'Reilly has a "slightly positive" investment outlook for the group.
The S&P Industrial Gases Index has performed well since the mid-September market low, despite disappointing earnings forecasts for the two industrial-gas makers in the index, Praxair (PX
) and Air Products & Chemicals (APD
), the third- and fourth-largest global players in the industry, respectively. Airgas (AGC
), the largest U.S. distributor of packaged gases, is the index' third member.
$40 BILLION MARKET. Other major participants in the U.S. market include Air Liquide America (a unit of France's L'Air Liquide) and Britain's BOC Group. (S&P doesn't follow either one analytically.) These companies, along with a large number of independents, also compete with Airgas in the packaged-gas market.
O'Reilly notes that the worldwide market for industrial gases -- which include nitrogen, oxygen, argon, hydrogen, acetylene, and carbon dioxide, among other names familiar to those who stayed awake in chemistry class -- is about $40 billion a year. The U.S. alone accounts for $13 billion of that. Historically, consumption of industrial gases has grown at 1.5 to 2 times that of industrial production growth.
O'Reilly's top pick in the index is Praxair, which carries a 4 STARS (accumulate) ranking from S&P. He notes that it has been able to deliver earnings growth despite shrinking revenues, mainly through cost cutting. He's neutral on Air Products and Airgas, each of which are ranked 3 STARS (hold).
S&P Relative Strength Rankings
These industries carry six-month relative strength rankings of "5" as of Jan. 25, 2002 -- meaning that they're in the top 10% of the 115 industries in the S&P Super 1500 (the combined S&P 500, S&P MidCap 400, and S&P SmallCap 600) based on prior six-month price performance.
Largest Company (Market Cap.)
S&P STARS* Rank
Air Freight & Couriers/Industrials
Casinos & Gaming/Consumer Discretionary
Park Place Entertainment (PPE)
Catalog Retail/Consumer Discretionary
Lands' End (LE)
Consumer Electronics/Consumer Discretionary
Harman International (HAR)
Fertilizers & Agricultural Chemicals/Materials
IMC Global (IGL)
KB Homes (KBH)
Praxair Inc. (PX)
Metal & Glass Containers/Materials
Office Electronics/Information Tech.
Amer. Water Works (AWK)
* S&P's ranking system for the appreciation potential of stocks over a 6- to 12-month period: 5 STARS (buy), 4 STARS (accumulate), 3 STARS (hold), 2 STARS (avoid), 1 STAR (sell). Stovall is senior sector strategist for Standard & Poor's