Look For Industries With 'Follow-On' Benefit November 05, 2007: 08:05 PM EST
Nov. 6, 2007 (Investor's Business Daily delivered by Newstex) --
It's always five o'clock somewhere. And some stock, some place, is always making a big price move.
One approach to spotting winning stocks is what you might call the follow-on effect.
The basic idea here is to look for clusters of industries that tend to move in tandem. When one key group begins to move, other industries with ties to it will likely follow.
For example, if home builders are busy, chances are that flooring companies also will score more sales.
If video game consoles are hot, expect the companies that make graphics chips to get a boost, too.
So when you see an industry leading the market, research it and see if there are key suppliers or related industries that stand to benefit.
You can find the leading industries each day in IBD's 197 Industry Group Rankings. The first 40 or 50 groups are where most leading stocks are usually found.
To find stocks in "follow-on" industries, try starting with the IBD 100.
Check to see if there are several stocks from a single group. That helps you identify an industry enjoying good fortunes.
Using the IBD Stock Checkup on Investors.com (point )you can get some details about the industry's performance.
The next step is probably the most important.
Search the IBD archives at Investors.com (point )for New America, Industry Snapshot and other articles on those companies.
In these stories you may learn about connections between one industry and another.
Sometimes the follow-on effect is easy to see.
A good year for aircraft makers like Boeing (NYSE:BA) BA probably means a good year for the aerospace parts makers group.
A multiyear boom in steel prices logically spreads to the ore mining and shipping groups, as well as to steel distributors and fabricators.
Other times, it's harder to see the cross-industry connections.
Take the run-up in ethanol-related markets on hefty biofuels subsidies put in place by Congress.
Ethanol in the U.S. comes from corn, and corn prices rose to near record highs on the new demand.
The follow-on effect hit seed-strain developer Monsanto (NYSE:MON) MON as corn seed sales soared. Its shares are up 78% this year. Its industry group, Agricultural Operations, is up about 18% over the same time.
More corn means more fertilizer. The chemical-fertilizer industry group has rocketed more than 150% this year.
Fertilizer stocks have been so successful, their group has been ranked No. 1 for many weeks.
The follow-on effect has been so strong, the group has outperformed agricultural operations, the group that Monsanto belongs to.
Fertilizers also have outperformed farm machinery stocks, which were ranked No. 13 out of the 197 groups in Monday's IBD.
Other groups also benefited.
Agricultural equipment makers sold more equipment.
Industrial builders in the machinery-general industrial group saw contracts to build ethanol facilities. That group was ranked No. 18 in Monday's IBD.
