We as people like to place everything in nice little groups. It’s how you keep things organized. The stock market is no different. All of the thousands of companies that trade on the exchanges are in groups called sectors and industries.
But what exactly are they? In a nutshell, sectors are a broad category. Each industry is a specific area within a sector.
Sector On Aisle 4
An easy way to think of a sector would be to compare it to the aisles of a grocery store. You have your aisle for breakfast foods, the aisle for paper goods and so on. Taking a look at the breakfast aisle, you would find many things on the shelf. You might find hot and cold cereal, breads, pancake mix, fruit bars and on and on.
All of these items would still be considered breakfast foods, but they could be further grouped together based on how similar they are. Companies included in a sector are grouped together in the same manner that aisles in a grocery store would be. They all share much of the same characteristics.
Looking at the grocery store example, the industries in the ‘sector’ of breakfast foods would be cold cereals, hot cereals, breads…etc. Lets look at a specific sector and the industries that are included in it to further illustrate this point.
Consumer Goods Sector
Within the consumer goods sector there are 32 different industries. Of those, some industries you’ll find are appliances, office supplies, meat products and sporting goods. All of the companies included in a particular industry are in a similar area of business.
Some of the stocks you will find in the appliances industry are Whirlpool (WHR) and iRobot (IRBT). Both deal in the selling of appliances of some sort. And since they are selling consumer goods, they are both categorized under the consumer goods sector.
When you’re doing your stock research and searching for the next candidate, looking at sectors or industries that may be experiencing gains can be a great place to start. That’s not to say that sectors that aren’t experiencing upward movement as a whole, won’t contain some great stocks.
That’s actually one of the things I did when I first started looking at stocks online. Whenever the market had a positive day, I would always look to see what stocks went down and why. And on down days I would find the stocks who were green and try to figure out why.
So How Many Are There?
Depending on what site you’re looking at, you may find a different number of sectors listed. Remember sectors are the broader grouping of stocks.
Yahoo Finance and Finviz.com both show nine main sectors. If you were browsing through Google Finance’s listings you would find 12 sectors. How they are grouped isn’t as important as understanding what a sector is in the first place.
As far as industries go, there are dozens if you include every one from each of the sectors.
So now that you have an understanding of sectors and industries, what are you supposed to do with this info?
As I mentioned earlier, you can use a sector or industry as a starting point for selecting a stock. Another way to use industry info to your advantage is to see how the stock you bought is performing compared to it’s peers in that same industry. I’ll go over that with you in a moment.
What do you do if you already have a stock but you don’t know what sector and industry it belongs to? Not to worry.
Say you have some shares of Microsoft (MSFT). There are a couple of easy ways to find out what group it belongs to.
The quickest way to find out where your stock belongs it to just plug it into Finviz.com. From the homepage, type in the ticker in the search bar located in the upper right side of the page. This will bring up general info about the stock. If you look just under the name of the company, you will see sector and industry info listed.
As you can see from the image above, the sector is listed first, followed by the industry. Pretty straight forward right?
A second place to find the same info is Yahoo Finance. Here you can find the same info, but it does take a few extra clicks.
After you’ve gone to the Yahoo.com home page and then clicked on the Finance link in the column on the far left, you will be brought to the Yahoo Finance home page. In the search bar at the top of the page, enter in either the ticker symbol or the name of the company you’re interested in.
Next you will want to look again to the left side of the page.
In the image above, you can see that right under the Company heading on the left side is the ‘Profile’ link. Clicking on this will bring you to a page that gives you a few facts about the company/stock that you’re viewing. The company profile for Microsoft is below.
Now you can see that Microsoft is in the Technology sector and is also listed within the Business, Software and Services Industry. Very useful info, once you know where to find it.
I mentioned earlier that you can use sector and industry info to gauge the performance of a stock you own or would like to own, compared to other stocks within that same sector or industry.
For this info the best resource is Finviz.com. From the homepage of Finviz click on the ‘Groups’ link in the main menu located at the top of the site.
This will bring you to a page that ranks the different sectors and industry based on their performance. By default sectors are shown first but you can change to industry by clicking the drop down menu labeled ‘Groups’ on the upper left side of the site.
The rankings that are displayed are how each sector as a whole (or industry if you have chosen that from the drop down menu) has performed over the past day, week, month, last three months, last six months and year to date. Now that you know how to check which industry and sector a stock belongs to, you can now see if your stock is performing in line with it’s peers or if it is going against the trend.
I hope that now you can easily identify the groups a particular stock belongs to with ease. Use this info to choose a group that is showing growth or just compare a stock to similar companies to find money making opportunities.