BOSTON ( TheStreet) -- If you're worried that bad Italian bonds and beaten-down eurozone stocks will infect your portfolio, it's time to consider what may be the top investment refuge today: U.S. industrial and materials stocks.
There are a couple of issues at work to support that contention.
First, U.S. equities have just entered their best six-month period, at least according to market history. Since 1945, the S&P 500 Index has gained an average of 6.8% from November through April, compared with a rise of only 1.2% from May through October, according to research by S&P Capital IQ.
Even more compelling is that since 1990, stocks in the industrial and materials sectors have beaten the S&P 500's 6.7% increase 76% of the time from November to April, 14 percentage points more than the second-place industry. Materials shares returned an average of 10.4% in that period and industrials climbed 9.4%.Also worth noting is that industrial and materials stocks do best in the early stages of an economic recovery, which could be the case today. But so far this year, industrials and materials have been losers. As of Nov. 8, industrials stocks are down 2.9% and materials are down 6.3% versus the S&P 500's 1.5% gain. And it's important to note that the volatile and highly correlated markets of today behave quite differently than those of even 10 to 15 years ago and, as such, cast a shadow on the worthiness of long-term statistics. Sam Stovall, chief equity strategist at S&P, said in a research note this week detailing the historic trends that, "if the flow this year mimics that of other years, it may be better to adopt a more cyclical mindset, despite the planet's present plethora of perplexing problems." Indeed, those problems are continuing. Alec Young, S&P Capital IQ's global equity strategist, told TheStreet that even though the U.S. economy appears to be moving away from the threat of another recession, "there's just no getting away from Europe" and what the impact of a failed Italian economy could mean to stocks worldwide. His firm's latest 12-month target for the S&P 500 is 1,360, a 10.6% premium to the current level, "much lower than most Wall Street firms," Young said, "but we're still looking for stocks to move higher." The materials sector represents a wide range of commodity-related manufacturing industries, including: chemicals, construction materials, metals, minerals, mining, glass, paper, forest products and related packaging products. Top-performing exchange traded funds (ETFs) in the sector include a slew of gold-focused funds led by iShares Comex Gold Trust (IAU), up 26% this year. The leading materials ETF is the Vanguard Materials Index Fund (VAW), down 4.7%. The industrials sector includes companies involved in aerospace and defense, construction, engineering and building products, electrical equipment and industrial machinery. The sector's stocks grew by an average of 24% in 2010, versus a 12.8% increase for the S&P 500. Defense and aerospace companies have done the best of the category and are up an average of 6% this year. Among ETFs in the industrials sector, the Vanguard Industrials Index Fund (VIS), is down 3.5% this year, while the iShares Dow Jones U.S. Aerospace and Defense Index Fund (ITA) is up 3.5%. The following are 10 of the top-performing materials and industrials sector stocks: