Strong Choices From Leading Sectors

 | Dec 16, 2011 | 4:30 PM EST
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Once a week or so, check the S&P 500 sectors to see what has rotated in or out of leadership. This year, there have been some big changes at the top as a result of market volatility.

But with December winding down, I wanted to see which sectors appear to be closing the year with the best gains. The results were not surprising. The utilities sector is the best performer, with a year-to-date gain of 10.85%, aided by investors flocking into stable dividend payers and large-caps.

Other defensives are looking to be year-end leaders. Consumer staples shows a 2011 gain of 7.44%, with healthcare up 6.43%.

I'll often use S&P sector strength as a starting point for further stock research. In this case, I ran some scans and found that El Paso Electric (EE), a constituent of the S&P SmallCap 600 index, is one of the best performers from the utilities sector.

The stock is forming a potentially bullish price consolidation near its 10-week line, although the character of trading was more erratic than usual over the past several months, consistent with general market volatility.

The stock currently has a dividend yield of 2.7%. Earnings growth is seen declining by 2% next year, to $2.42 a share.

Institutions have gotten on board in recent quarters, and for investors looking for small-cap exposure, this could be one to watch. I'd like to see the price rebound above price resistance at $34.85.

El Paso Electric has posted a 2011 gain of 20%.

From consumer staples, S&P MidCap 400 component Church & Dwight (CHD) is a top performer. The stock has a market cap of around $6.3 billion and it trades about 750,000 shares a day, not bad liquidity.

The company makes a number of familiar household brands, including Arm & Hammer, OxiClean and Orajel toothache remedies.

The stock is up nearly 30% year-to-date. It's been getting 10-week support lately after rebounding from an Aug. 8 low of $36.78. Its August breakdown appears to have been constructive, flushing out traders and investors lacking in conviction, with more confident buyers subsequently stepping in.

As with many consumer staples companies, Church & Dwight's revenue and earnings growth is solid but not explosive. Wall Street sees income growing at a rate of 10% in 2012.

The current overall market weakness gives me reason to be cautious about any investment candidate, but this is a name to track for mid-cap exposure.

The third leading sector for the year, healthcare, has a number of contenders from all market caps. One that emerged near the top of my scan, however, was benchmark index component Biogen Idec (BIIB). The large-cap has shown outstanding price strength in 2011, advancing 64% so far.

That might suggest the stock is ready for a breather. It's currently consolidating in an orderly fashion above its 10-week line. However, the stock sported even more bullish technical action as it rebounded from a bottoming base with an August low of $83.83.

The Massachusetts biotech develops treatments for multiple sclerosis, cancer and autoimmune diseases, among other ailments. Analysts expect 2012 earnings growth to slow to 7%, to $6.31 per share. Biogen has a good history of annual earnings increases.

This is a stock I would easily put on a watch list and monitor for a heavy-volume price gain above its all-time high of $120.66, reached in October.

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