Industries on the Move: Bear Stearns Wounds the Brokers, Again

Stocks are trading modestly higher on Monday despite weak housing data for the month of May. Sales fell, inventories rose, and housing prices slipped for the tenth month in a row. But investors were relieved that the data wasn't even worse. The bullish reaction proves once again that expectations are what counts on Wall Street.

Stocks are also getting a boost from lower bond yields and oil prices, setting the stage for a strong bounce on Monday after Friday's selloff. The Dow Jones Industrial Average fell 1.4% on Friday on concerns that weakness in housing and mortgages will hurt the economy. Once again the culprit was Bear Stearns (BSC@BSC | Quote | Chart | News | PowerRating), which dragged down the entire Investment Brokerage Industry on Friday.

On Friday the National Investment Brokerage industry fell 4.6%, making it Friday's biggest industry loser. The group has a PowerRating (for Industries) of 5, and on Monday it was down another 0.2% in mid-day trading. Recent weakness reflects ongoing hedge-fund problems at Bear Stearns. The stock is near a three-month low because the firm has been losing money in two of its hedge funds that are heavily invested in mortgage securities. These funds are under pressure from the meltdown in subprime lending, which is experiencing record levels of defaults. Shares of Bear Stearns have been struggling for the last few trading days, and are off another 1.5% on Monday to $141.67. This is hurting the entire brokerage group, a theme I originally discussed on Thursday. Bear Stearns stock has a PowerRating (for Investors) of 7 and a market capitalization of $20 billion.

Every day we highlight industry leaders and laggards, with a focus on groups with high PowerRatings (for Industries). Our quantitative data from 1995 through 2006 have done a good job of identifying industries that have risen on an annualized basis. Investors who seek growth and safety should consider our list of Top Rated Industries. One such group is Oil and Gas Equipment and Services, which rose 0.9% on Friday. The group has a PowerRating (for Industries) of 9, and it has risen about 25% over the last year due to strength in oil and gas prices. On Monday the group is in retreat as oil prices ease: the Oil and Gas Equipment and Services industry is down 1.6% in mid-day trading on Monday.

Investors should also note our Industries to Avoid (groups that have low PowerRatings for Industries). The results of our simulated trading show that industries rated 1 have lost money on an annualized basis. On Monday there were three lagging groups that have a PowerRating (for Industries) of 2: Drug Manufacturers were down 4.1%, Gold was down 1.1%, and Recreational Vehicles were down 0.7%.

Rob Martorana is Director of Content for PowerRatings.net.

Rob was most recently at TheStreet.com as the Director of Content for Professional Products. Robert has spent 22 years on Wall Street, and was a portfolio manager and head of U.S. equity research at Barclays Private Bank. Robert also managed small-cap stocks at Schroder Capital Management International, was an equity analyst at Vontobel USA, and was an editor and senior industry analyst for The Value Line Investment Survey.