Sectors in the Stock Market
by Vicki A Benge
When a investor speaks of "Energy Stocks", they are generally referring to all the companies in the Energy Sector, meaning those that may specialize in petroleum products, along with coal companies, natural gas, alternative fuels, and et cetera.
One point of analysis in evaluating a particular stock is to compare the current and historical performance of the company with like companies in the same sector. But what do we mean by "sector"?
In investment jargon, a sector refers to a group of companies that participate in the same area of business. For example, investors analyze companies across broad areas such as the Energy Sector, or the Consumer Staples sector, or the Basic Materials sector. Then those broad area sectors can be further subdivided into more specific areas, as in the Financial sector, where we have more specialized subdivisions such as Banks, Diversified Financials, Insurance, and Real Estate. These subdivisions of the Financial Sector can be further divided into even more specific areas such as Regional Banks. [There's an ETF index fund for that -- KBW Regional Banking ETF (NYSE: KRE).] The Regional Banks grouping can then be further subdivided into Regional Banks of the Southeast United States or Regional Banks of the Northeast United States, and so forth.
Another example is the Consumer Discretionary sector, which is comprised of five industries totaling more than 400 companies. The industries within this sector include more than 20 companies in the Automobile and Components industry; more than 80 companies in Consumer Durables and Apparel; more than 100 companies in Consumer Services; 50 plus Media companies; and more than 120 Retailing companies.
Comparatively the Materials Sector comprises close to 130 companies with no major industry subdivisions.