Our Relative Rankings list is comprised of the best relative ideas from across our coverage. We evaluate stocks based on their expected performance relative to peers in the same industry. The list is pulled from all of the stocks, bonds, or derivatives in our coverage for that industry.

Stocks in the same industry are usually highly correlated to each other. They are all impacted by the same industry dynamics, macroeconomic factors, and regulatory changes. Most of the time its more important to pick the right industry than the right stock because they all go up or down together.

Relative rankings are how you create true alpha. Relative rankings are how you pick winners and losers in an industry. You identify which stocks will outperform, and which stocks will underperform. Performance is measured relative to industry peers, which means stocks don’t have to go up to outperform. They just have to go down less than their peers, and vice versa for underperformance. If you go long stocks that outperform and short stocks that underperform in equal proportions, even if all your stocks go down the gains on your shorts should offset the losses on your longs. This is how you hedge out market risk and generate alpha.

We categorize every stock as Outperform, Market Perform, or Underperform based on our relative value framework. Our rankings are not linear, either across categories or within categories. That means gains in the Outperform category can be of a greater magnitude than losses in the Underperform category, and a stock in the Outperform category can go up more than anther stock in the Outperform category. It’s important to read our full investment thesis to understand the qualitative factors behind our recommendations.

How we determine relative rankings for our coverage. Stocks rated Outperform have high upside potential, clear catalysts, and limited downside risk. Stocks rated Market Perform have limited return potential, lack clear catalysts, and risk/reward is more balanced. Stocks rated Underperform have high downside potential, clear catalysts, with limited upside risk.

Most of the time you don’t want to hedge out market risk. Market neutral strategies based on relative rankings are notoriously difficult and have low returns. Most of their returns come from the use of leverage, which amplifies small gains. Leverage is available to hedge funds, but unfortunately not everyday investors. The biggest advantage of market neutral strategies is lower volatility, but as an investor with a longer time horizon you shouldn’t care about volatility. Market beta is a the largest driver of long-term performance, therefore we recommend maintaining full exposure to the market. Relative rankings can still make it easier to conceptualize an industry.

The lists are short and sweet. They summarize the company’s business model, our investment thesis, and the key risks for our best long ideas. For more information, please visit the company’s landing page or read our recent research on the stock. See below for jump links to each industry’s relative rankings section on this page.