KENTUCKY CROSSWORDS

Consumer Investments

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.

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However, evaluating the stock of a company in relationship to the stock of companies within the same sector or industry does not work for all U.S. stock. One prime example is that of General Electric (NYSE: GE), which defines the word conglomerate. General Electric operates businesses across a broad variety of areas. In reviewing the "Organization Chart" that the company itself provides to investors, the organization is divided into: Energy, Technology Infrastructure, GE Capital, Home and Business Solutions, and NBC Universal.

The Energy division is further sub-divided into: Energy Services; Oil and Gas; and Power and Water. The Technology Infrastructure is sub-divided into: Aviation; Healthcare; and Transportation. GE Capital is sub-divided into: Americas; Asia Pacific; Aviation Financial Services; Consumer Finance; Europe, Middle East and Africa; Energy Financial Services; and Real Estate. GE Home and Business Solutions is divided into: Appliances and Lighting; and Intelligent Platforms. And finally, NBC Universal is sub-divided into: Cable; Film; International; Network; and Sports and Olympics.

Each of GE's divisions is once again sub-divided into a multitude of business units, (i.e. companies and enterprises). Therefore, GE will not fit comfortably into any stock sector division unless it's one specifically for conglomerates. However, if we compare another company with publicly traded stock that is classified by some as a conglomerate, such as United Technologies Corporation (UTC), (NYSE: UTX), we see that United Technologies operates six business units: Pratt & Whitney (aircraft engines); Otis (elevators and escalators); Carrier (heating and air conditioning); Hamilton Sundstrand (aerospace systems and industrial products); and UTC Fire and Security (security systems). As is obvious from the major divisions of the two conglomerates, (GE and UTC), they operate across some common areas of business but differ completely in others.

Yet the majority of publicly held companies in the U.S. can be categorized into specific sectors and further sub-divided into industries, and often further into specific business types and therefore can be compared to their competitors in terms of stock value and performance. To investors, that is the importance of monitoring the overall performance of stocks within sectors and comparing the individual companies within those sectors with each other.

Examples of major stock sectors in the United States and well-known representative companies from each sector are shown in the table below.

MAJOR U.S. STOCK SECTORS

Disclaimer: Information on this Web site is intended for consumer informational purposes only.