To assess a industry group's potential, an investor would what to consider the overall growth rate, market size, and importance to the economy. While the individual company is still important, its industry group is likely to exert just as much, or more, influence on the stock price. The chart below shows that relative performance of 5 sectors over a 7-month time frame. As the chart illustrates, being in the right sector can make all the difference. Once the industry group is chosen, an investor would need to narrow the list of companies before proceeding to a more detailed analysis.
Investors are usually interested in finding the leaders and the innovators within a group.
The first task is to identify the current business and competitive environment within a group as well as the future trends. Success depends on an edge, be it marketing, technology, market share or innovation. A comparative analysis of the competition within a sector will help identify those companies with an edge, and those most likely to keep it. With a shortlist of companies, an investor might analyze the resources and capabilities within each company to identify those companies that are capable of creating and maintaining a competitive advantage. The analysis could focus on selecting companies with a sensible business plan, solid management and sound financials.