NEW YORK ( TheStreet) -- Investors shouldn't worry that January was a bust for the stock market, with the S&P 500I:GSPC down 3.1%. Last January the broad market index fell 3.5%, and it ended the year with an 11.4% gain.
Since World War II there have been seven other times the index declined in January two years in a row and four of them, or 57%, were followed by gains averaging 22.4% over the remaining 11 months of the year, according to Sam Stovall, chief equity strategist for S&P Capital IQ.
We don't know yet if 2015 will follow that bullish pattern so investors should consider this strategy: Buy the sectors of the S&P 500 that performed best this January and hold them for at least a year. Since 1990 that strategy has had a compound annual growth rate of 9.1% compared to 7.5% for the broader S&P 500, says Stovall.
So what were the best performers this January? Consumer staples, down 1.3%; utilities, up 2.3% and health care, up 1.2%. (These are the performances of Consumer Staples Select Sector SPDR Fund (XLP) - Get Report , Health Care Select Sector SPDR Fund (XLV) - Get Report and Utilities Select Sector SPDR Fund (XLU) - Get Report , respectively.). All three sectors are traditional defensive sectors, whose performance tends to be less dependent on the overall direction of the economy. And two of them -- utilities and health care -- were the top performers last January and the top performers for all of 2014 -- up 24% and 23%, respectively -- more than double the gain in the broader market.
Consumer staples fell just over 5% last January but still ended the year up almost 13%, outperforming the S&P 500.
Clearly investors like the relatively high yields of consumer staples and utilities, now 3.9% and 2.4%, respectively, which exceed the yield on not only the S&P 500 but also the 10-year Treasury note. These yields provide a cushion against market downturns, which is not totally unexpected in this seventh year of a stock rally. (Most don't last longer than 4 years).
Schwab recently upgraded the consumer staples sector to outperform because of its past performance during times of "increased worry and volatility," writes Brad Sorensen, director of market and sector analyst at Schwab & Co., in a recent report. He says consumer staples may also benefit in the short term from falling energy prices, which will reduce costs for those companies.
Another strategy for investors this year is to buy the 10 best performing sub-industries of the S&P 500 for January and hold them for at least a year, says Stovall. Since 1990 that strategy has returned a compound annual growth rate of 12.5% -- well above the 9.1% for the top three sectors in January. But it's riskier because there are so few ETFs that mirror those categories. So Stovall suggests instead owning individual stocks within those categories that have the highest ratings from S&P Capital IQ. They are listed in the table below.
Top Performing S&P 500 Sub-Industries in Jan. 2015 & Stock Picks
Jan. 2015 Gain
Home Entertainment Software
Harman Intl. Industries
Health Care REITS
Apartment Investment & Mgmt.
Distillers & Vintners
Source: S&P Capital IQ
TheStreet Ratings team rates NEWMONT MINING CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate NEWMONT MINING CORP (NEM) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, poor profit margins, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
You can view the full analysis from the report here: NEM Ratings Report
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.