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Use Stock Ratings to Set Sector Allocations


NEW YORK ( TheStreet) -- A good way to evaluate whether or not to underweight or overweight the 16 sectors tracked by is to look at the percentage of buy rated stocks vs. the percentage of sell rated stocks in each sector. This table gives you this data for 8,389 stocks tracked by ValuEngine.

Any sector with 40% or more of the stocks in that sector rated buy or strong buy, that sector deserves an overweight rating. Any sector with 40% or more of the stocks in that sector rated sell or strong sell that sector deserves an underweight rating. A sector with 70% or more stocks rated buy or strong buy should have a 'double-weighting'. A sector with 70% or more stocks rated sell of strong sell should have an 'avoid-source of funds' rating. Any sector with a balance of ratings between 40% on the buy side or 40% on the sell side deserves an equal-weight rating.

Even in the underweight or 'avoid-source of funds' sectors traders can still use my buy-and-trade strategy when I profile these stocks in an article I write on

Aerospace: This sector is rated underweight, and there are no stocks worthy of your investment dollars at this time. Use a buy-and-trade strategy only.

Auto-Tires-Trucks: This sector is rated equal-weight. I do not have a stock in this sector worthy of your investment dollars. Use a buy-and-trade strategy only.

Basic Materials: This sector is rated underweight with no stocks worthy of your investment dollars. Use a buy-and-trade strategy only.

Business Services: This sector is rated equal-weight. One stock to consider is buy rated Hertz Global (HTZ) ($22.05).

Computer & Technology: This sector is rated overweight. Companies to consider include buy rated Jabil Circuit (JBL) ($21.71), Cisco Systems (CSCO) ($23.00), America On-Line (AOL) ($34.95), and IBM (IBM) ($183.86).

Construction: This sector is rated underweight. Note that the homebuilders I tracked on Sept. 26 in Homebuilder Volatility Provides Trading Opportunities remain sell or strong sell rated. Even so, homebuilders have been good candidates for a buy-and-trade strategy.

Consumer Discretionary: This sector has an equal-weight rating. Take-Two Interactive (TTWO) ($17.73) has a buy rating.

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