How to Analyze Stock Sectors
Sector has many different meanings depending on the industry in which the term is used. In the financial world, sector refers to a grouping of companies. For instance, an analyst might compare the automobile sector to the equipment sector. This usually includes a review and assessment of the sector's current state and insights about the direction of the sector in the future.
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Instructions
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Identify the sector you would like to analyze. Use your favorite investment research site (or brokerage) to identify the best sector for you. Two reputable investment research sites are Yahoo! Finance and MSN Money.
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Select the sector based on performance indicators such as profit margin or sales growth or based on your own interests. Perhaps you are interested in investing in the industry in which you're employed. Yahoo! Finance provides several different metrics for you to compare and sort by.
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Study the industries which comprise that sector. For instance, the health care sector covers everything from hospitals to biotechnology. While one industry in a sector may perform poorly, another may perform well.
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Determine what you are analyzing and then drill down on a metric which measures it. For instance, if you're choosing a sector based on sales growth, look at sales growth over the past year or five years. If you're interested in the intrinsic value of the sector against the market, you can look at the current market price per share of the stock compared to the actual earnings per share. This is also referred to as the P/E ratio. For every concern, there's a ratio to help research it.
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Track sectors over time using sector indexes. An index is a group of stocks which is tracked over time based on an average. The most common index is the Dow Jones Industrial Average. Indexes help to gauge the activity of the general sector.
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