8 stocks for the market's next rally (1) by Jim Jubak

Jim Jubak 9/9/2010 5:00 PM ET

8 stocks for the market's next rally

By Jim Jubak

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http://articles.moneycentral.msn.com/Investing/JubaksJournal/a-peek-at-the-next-market-winners.aspx

For a stock to get my attention in the Sept. 1 rally, it needed a jump that was way above the 3% gain recorded by the S&P 500 that day.

Click graphics to see interactive charts

KB Home

Beazer Homes

Hovnanian Enterprises

Lumber Liquidators

The best performers in U.S. markets fell into very identifiable groups. As you might expect, some of the big winners were in the truly beaten-down sectors and industries:

• Among homebuilders, KB Home (KBH, news, msgs) was up 11.1%, Beazer Homes (BZH, news, msgs) 9.5% and Hovnanian Enterprises (HOV, news, msgs) 7.6%. Shares of companies that depend on the health of the homebuilders also gained; Lumber Liquidators (LL, news, msgs), for example, gained 7.1%.

• Among oil drillers, Rowan (RDC, news, msgs) climbed 9%; Pride International (PDE, news, msgs) was up 7%.

The rally also helped a few stocks in special situations, such as Burger King (BKC, news, msgs), which jumped after a buyout offer from a Brazilian investment fund.

These patterns are interesting, but I don't find them compelling. In most of these cases, the stocks that popped in these groups are companies still fighting huge head winds. Fixing the problems of oversupply in the housing industry, for example, isn't a matter of just a good quarter or two.

But also among the best performers -- and this is where I'd say the most interesting action was Sept. 1 -- was the cyclical group, the stocks of companies heavily leveraged to the economic cycle. Cyclical stocks are historically one of the sectors that rise fastest when the economy recovers. If investors were expressing a little more optimism about the economy Sept. 1, it's exactly these stocks that should have soared.

And that they did suggests you'd like to be over-weighted in this sector when the real turn in the economy arrives.

http://articles.moneycentral.msn.com/Investing/JubaksJournal/a-peek-at-the-next-market-winners.aspx