Seeking big winners among leading U.S. stocks

arobinson@globeandmail.com

WHAT ARE WE LOOKING FOR?

In the past two days, we have looked at Ron Meisels' bets on what are likely to be the best and worst performers among the Canadian blue-chip stocks. Today, we'll look at who he thinks will be the big winners among the S&P 100, the leading stocks within the more widely followed S&P 500.

Mr. Meisels is president of Phases and Cycles Inc. and writes a technical analysis feature for the Saturday Report on Business. Phases and Cycles also provides research to Caldwell Meisels Canada Fund to help determine both its sector weightings and the individual stock picks.

MORE ABOUT THE TOP100

Mr. Meisels uses technical, cyclical and sentiment indicators to sift through the S&P 100 for stocks he thinks will outperform. Using a methodology similar to his picks among the S&P/TSX 60, he first looks at the sectors that are most likely to outperform and then picks stocks in the favoured sectors. The main tool used to make both sector and company picks is the relative performance index. This index compares each sector's price performance against the S&P 100 and also compares the performance of each security within its own sector.

During the past year, the so-called TOP100 portfolio (the acronym stands for technically organized portfolio) increased 11.3 per cent, compared with an 11.1-per-cent rise in the S&P 100. During the first full three years of operation the TOP100 portfolio has declined at an annual compound rate of return of 3.4 per cent, compared with an average annual decline of 11.6 per cent on the S&P 100.

WHAT WE FOUND

The TOP100 portfolio has become decidedly defensive in July with increased exposure to consumer staples, health care, telecom and utilities, while cutbacks were made in energy, financials, industrials, information technology and materials. It remains overweight the consumer discretionary stocks, although it had reduced its exposure to the group.

But in volatile markets, mood swings can be dramatic. "The market is tremendously oversold," Mr. Meisels said. A change is already showing up in the sentiment indicators, he said. The U.S. financials, for example, are in a "sleep mode," but there are indications they might be ready to move higher.

"You could see a change in the defensive weightings next month," he said.

The technical analyst looks at the cyclical behaviour or patterns in the stock market over all, the shift in sentiment among investors and the price action of individual stocks, Mr. Meisels said.

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