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Sector Rankings: Relative Performance

A stock's absolute score matters, but how it ranks against peers is equally important.

Why Rankings Matter

A score of 65 means different things depending on context:

  • 65 when sector average is 50 = Above average
  • 65 when sector average is 70 = Below average

Rankings show you where a stock stands relative to its peers.

Class Rankings

Getting 85% on a test sounds good. But:

  • If class average is 70%, you're above average
  • If class average is 90%, you're below average

Context matters. Rankings provide that context.

Understanding Sector Rankings

Rank Within Sector

Example: #15 of 200 in Technology

This means:

  • 14 tech stocks score higher
  • 185 tech stocks score lower
  • Top 7.5% of the sector

Percentile

Example: 92nd percentile

This means:

  • Scores higher than 92% of sector peers
  • Only 8% score higher

Sector Average Comparison

Example: Score 72 vs. Sector Avg 58

This means:

  • 14 points above average
  • Significantly better than typical sector stock

Key Takeaways

  • Rankings show relative performance vs. peers
  • Top quartile (top 25%) is generally attractive
  • Compare to sector average for context
  • Rankings update as scores change

Interpreting Rankings

Top 10% (90th+ percentile)

  • Meaning: Among the best in sector
  • Action: Strong candidate for research
  • Caution: May be well-known, less upside

Top 25% (75th-90th percentile)

  • Meaning: Above average
  • Action: Worth investigating
  • Opportunity: May be overlooked gems

Middle 50% (25th-75th percentile)

  • Meaning: Average for sector
  • Action: Need special reason to invest
  • Reality: Most stocks fall here

Bottom 25% (Below 25th percentile)

  • Meaning: Below average
  • Action: Generally avoid
  • Exception: Turnaround situations

Sector vs. Industry Rankings

Sector Ranking

  • Broader comparison (e.g., all Technology)
  • More stocks in comparison set
  • Good for sector allocation decisions

Industry Ranking

  • Narrower comparison (e.g., Semiconductors)
  • Fewer, more similar companies
  • Better for stock selection within industry

Example:

  • Sector rank: #50 of 400 (Technology)
  • Industry rank: #5 of 30 (Semiconductors)

This stock is good for tech, excellent for semiconductors.

Finding Hidden Gems

Look for stocks that:

  • Rank highly within their industry
  • But aren't in the overall top 10

These may be overlooked by investors focused only on the biggest names.

Using Rankings for Stock Selection

Strategy 1: Top of Sector

  • Focus on top 10-20 stocks in each sector
  • Pros: Best of the best
  • Cons: May be crowded trades

Strategy 2: Sector Rotation

  • Find top stocks in currently undervalued sectors
  • Pros: Sector tailwinds help
  • Cons: Requires sector timing

Strategy 3: Industry Specialists

  • Pick top 1-2 stocks in industries you understand
  • Pros: Focused expertise
  • Cons: Less diversification

Rankings Over Time

Rankings change as:

  • Stock prices move
  • Fundamentals update
  • Peers improve or decline

Improving Rank

  • Stock getting better relative to peers
  • Potentially early in recognition
  • Bullish signal

Declining Rank

  • Stock getting worse relative to peers
  • Others catching up or surpassing
  • Bearish signal

Ranking Traps

  • Assuming #1 rank means best investment
  • Ignoring absolute scores (high rank in weak sector)
  • Not checking industry rank (sector too broad)
  • Chasing yesterday's top performers

Next up: Putting it all together—a complete stock analysis.

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