5 Best Stocks in the 5 Best Industries

There's an old investing theory that states that at least 50% of a stock's movement can be attributed to the group that it is in. In other words, the main driver for a stock is the overall performance of the industry it belongs to.

Whether or not a stock's industry is truly responsible for half of its movement, it is certainly important to consider the industry when investing in a company. An "ok" stock in a great industry will probably perform better than a great stock in a bad industry.

Here at Zacks, we recognized this importance and created a useful tool to easily pinpoint the best industries at any given moment. The Zacks Industry Rank calculates the average Zacks Rank for all of the companies in an industry and then assigns an aggregate rank to it.

While the Zacks Industry Rank has proven to be an effective way of sizing up an industry, it is still important to be looking for the best stocks within those industries. Today, we've done that for you by compiling a list of five Zacks Rank #1 (Buy) stocks that each fall into one of the top five industries as defined by the Zacks Industry Rank.

5. Fiber Optics – Alliance Fiber Optic Products AFOP

The Fiber Optics industry is currently tied for a fourth place spot in the Zacks Industry Rank, with an average Zacks Rank of 2.25. Alliance Fiber Optic Products is a Sunnyvale, California-based manufacturer of fiber optic components that are used by leading communications equipment makers throughout the world. Despite missing the Zacks Consensus Estimate in its latest earnings report, analysts remain bullish on AFOP. We've seen positive earnings estimate revision activity lately, and the company was recently upgraded to a Zacks Rank #1 (Strong Buy) within the last week.

4. Auction/Valuation Services – Ritchie Bros. Auctioneers RBA

Also tied for fourth in the Zacks Industry Rank, Auction/Valuation Services has an average Zacks Rank of 2.25. Ritchie Bros. Auctioneers is a unique, unreserved public auction company that hosts auctions throughout five continents. Ritchie Bros. innovated the auction industry with its unconventional operations, making the company one of the largest industrial auctioneers in the world. In the past 60 days, we've seen eight positive earnings estimate revisions for RBA, so investors should feel confident that this stock is poised to stick out in an already strong industry.

3. Agricultural Machinery – Lindsay Corp. LNN

With an average Zacks Rank of 2.14, the Agricultural Machinery industry currently stands at third on the Zacks Industry Rank. Lindsey Corporation, one of the world's leading manufacturers of irrigation equipment, is one of three Zacks Rank #1 (Strong Buy) stocks within the industry right now. However, LNN sticks out because of its recent performance, highlighted by the company beating the Zacks Consensus Estimate by a whopping 44.74% in its latest earnings report. Analysts expect even further success from LNN, as we've seen six positive earnings estimate revisions in the last 60 days.

2. Semiconductor Foundries – EZCHIP Semiconductors Ltd. EZCH

An average Zacks Rank of 2 puts Semiconductor Foundry companies at the number two spot in our Zacks Industry Rank. EZCHIP is a semiconductor company that provides Ethernet network processors for networking equipment. The company prides itself in its flexibility and integration, which help make EZCH products effective solutions for telecom networks, enterprise backbones, and data centers. EZCH destroyed the Zacks Consensus Estimate last quarter, and an "A" grade for momentum in our Style Scores system illustrates how fast this stock has been climbing recently.

1.Retail Consumer Electronics – Aaron's Inc. AAN

According to the Zacks Industry Rank, Retail Consumer Electronics is the strongest industry at the moment. On top of the best industry sits Aaron's AAN, an Atlanta, Georgia-based company that engages in the selling and leasing of residential and office furniture, consumer electronics, home appliances and accessories. An impressive earnings beat of 32.61% last quarter and a Forward P/E of 16.69 help illustrate the recent performance and value of this stock, but it's the six positive earnings estimate revisions in the past 30 days that really represent what could lie ahead for AAN investors.

Bottom Line

Over time, it has been seen many times that there seems to be a relationship between the performance of a stock and the strength of the industry In which the stock resides. That should inspire investors to find the best of the best: strong stocks in strong industries. At Zacks, we have the tools to find these companies for investors, and these five stocks illustrate how well the Zacks Rank and Zacks Industry Rank work together to pinpoint quality stocks.

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