Quant Model Picks Best & Worst Industries

BOSTON (TheStreet) -- Now that stocks are up about 50% from their low in March, a bull-bear debate is polarizing investors.

Some say economic growth has returned, and it's here to stay, suggesting the stock-market rally still has legs. Others claim it's an aberration in a larger downward trend -- a so-called bear-market rally -- and equities will collapse under their own weight.

The advantage of TheStreet.com Ratings' quantitative model is that it removes the trend-following and emotional elements of stock-picking, enabling investors to focus on the best fundamental, risk-adjusted investments, companies with clean balance sheets, ample margins and consistent growth.

The model, which is neither a bull nor a bear, is urging a switch into defensive stocks. I broke down our 5,000-strong coverage universe by industry group and identified the 10 industries with the highest percentage of "buy" recommendations.

The model is bullish on utilities, household products, multi-line retail, containers and packaging, food and staples, and health-care providers. Those industries provide the absolute necessities for living. Does that imply an imminent correction or a revival of quality stocks?

The model's tilt toward utilities indicates a movement into companies that will benefit from the next stage in the economic cycle. However, favoritism toward food and household products, and multi-line retail (mostly discounters), suggests caution.

Here is a look at our top 10 industries and how they compare to the "buy" list.

Top 10 Industries Industry Stocks Covered % of Buys Overall Score Buy-List Overall Score Gas Utilities 30 73% 5.0 5.8 Multi-Utilities 25 72% 5.3 5.8 Household Products 16 56% 4.8 5.8 Electric Utilities 38 55% 4.9 5.8 Multiline Retail 16 44% 4.1 5.8 Containers & Packaging 24 42% 4.4 5.8 Food & Staples Retailing 36 42% 4.4 5.8 Food Products 79 39% 4.3 5.8 Health Care Providers & Services 135 36% 4.0 5.8 Water Utilities 17 35% 4.3 5.8 Source: TheStreet.com

Stock-pickers should use this table as a starting point for research. Industries with the highest share of "buys" still offer discounts. These vanilla businesses don't generate much buzz, but they pay hefty dividends and generate consistent growth.