Stock Market Content - Why is Stock Market Content Classified in Sectors and Industries?

Classification of stock market content in sectors and industries helps you analyzing stocks, since it only makes sense to compare stocks within each sector or industry.

The most often used classification of stock market content is to group stocks in sectors and industries. This is especially important when analyzing stocks; it only makes sense to compare stocks within each sector or industry.

Many people are confused in using the terms industry and sector and they often mix them. Both terms have similar meaning, they describe a group of companies that operate in the same segment of the economy or share a similar business type. The only difference between these two terms is in their scope; while the term sector refers to a large segment of the economy, the term industry describes a much more specific group of companies within specific sector. For example, the financial sector can be broken down into industries such as Banks, Insurance, Real Estates and Diversified Financials.

It should be noted that you may find situations in which these two terms are reversed, like with Industry Classification Benchmark (ICB) for example.

Importance of Stock Market Content Classification for Investors

Thomson Reuters Business Classification (TRBC) Structure

Stock market content is classified in economic sectors, business sectors, industry groups and industries.

Stock Market Content

When analyzing stocks, one of the most often used fundamental approaches is to compare financial ratios among different companies and trying to find undervalued stocks and put them on the list of buying opportunities. Everything is fine with this, but it only makes sense to compare apples with apples and pears with pears, while comparing apples and pears could lead you to erroneous conclusions.

For example, comparing price to earnings ratio (P/E) between Ford (at the time of writing 7.27) and Google (at the time of writing 21.62) doesn't tell you anything about which stock is most likely undervalued. But comparing Ford P/E to Toyota P/E (at the time of writing 50.18) makes sense and looking solely to this ration Ford stocks looks cheaper then Toyota stock; of course, before making final investment decision you have to analyze further, you never make decision based only on one ratio!!!

Different Standards and Classifications

Many different industry classification standards exists and while surfing the web financial portals you will see that stock market content is not classified exactly in the same groups and levels; there are minor differences among them.

You will mostly find one of the following three classifications in global financial community: Thomson Reuters Business Classification (TRBC), Global Industry Classification Standard (GICS) developed by Morgan Stanley Capital International (MSCI) and Standard & Poor's (S&P) or Industry Classification Benchmark (ICB), a classification structure maintained by Dow Jones Indexes and FTSE Group.

Thomson Reuters Business Classification (TRBC)

The Thomson Reuters Business Classification (TRBC) is an industry classification of global companies; it is owned and operated by Thomson Reuters and is also the basis for Thomson Reuters Indices. TRBC uses 4 level classification: Economic Sector, Business Sector, Industry Group, Industry.

Economic Sector Business Sector Industry Group Industry
Energy Energy Coal Coal
Oil & Gas Integrated Oil & Gas
Oil & Gas Exploration and Production
Oil & Gas Refining and Marketing
Oil & Gas Related Equipment and Services Oil & Gas Drilling
Oil-related Services and Equipment
Oil & Gas Transportation Services
Renewable Energy Renewable Energy Equipment & Services
Renewable Fuels
Basic Materials Chemicals Chemicals Commodity Chemicals
Agricultural Chemicals
Specialty Chemicals
Diversified Chemicals
Mineral Resources Metals & Mining Precious Metals & Minerals
Steel
Aluminum
Specialty Mining & Metals
Construction Materials Construction Materials
Applied Resources Paper & Forest Products Forest & Wood Products
Paper Products
Containers & Packaging Non-Paper Containers & Packaging
Paper Packaging
Industrials Industrial Goods Aerospace & Defense Aerospace & Defense
Machinery, Equipment & Components Industrial Machinery & Equipment
Heavy Machinery & Vehicles
Electrical Components & Equipment
Heavy Electrical Equipment
Industrial Services Construction & Engineering Construction & Engineering
Diversified Trading & Distributing Diversified Trading & Distributing
Commercial Services & Supplies Environmental Services
Commercial Printing Services
Employment Services
Business Support Services
Business Support Supplies
Industrial Conglomerates Industrial Conglomerates Industrial Conglomerates
Transportation Air Freight & Courier Services Air Freight & Courier Services
Airline Services Airlines
Airport Services
Marine Services Freight Transportation, Marine
Marine Port Services
Transportation, Ground Passenger Transportation, Ground & Sea
Freight Transportation, Ground
Highways & Rail Tracks
Cyclical Consumer Goods & Services Automobiles & Auto Parts Automobiles & Auto Parts Auto & Truck Manufacturers
Auto, Truck & Motorcycle Parts
Tires & Rubber Products
Cyclical Consumer Products Textiles & Apparel Textiles & Leather Goods
Apparel & Accessories
Footwear
Homebuilding & Construction Supplies Homebuilding
Construction Supplies & Fittings
Household Goods Consumer Electronics
Appliances, Tools & Housewares
Home Furnishing
Leisure Products Toys & Games
Recreational Products
Cyclical Consumer Services Hotels & Entertainment Services Hotels, Motels & Cruiselines
Restaurants
Casinos & Gaming
Leisure & Recreation
Media & Publishing Advertising & Marketing
Broadcasting
Entertainment Production
Publishing
Diversified Media
Retailers Diversified Retail Department Stores
Discount Stores
Specialty Retailers Auto Vehicles, Parts & Service Retailers
Home Improvement Products & Services Retailers
Home Furnishings Retailers
Other Specialty Retailers
Apparel & Accessories Retailers
Computer & Electronics Retailers
Non-Cyclical Consumer Goods & Services Food & Beverages Beverages Brewers
Distillers & Wineries
Non-Alcoholic Beverages
Food & Tobacco Fishing & Farming
Food Processing
Tobacco
Personal & Household Products & Services Personal & Household Products & Services Household Products
Personal Products
Personal Services
Food & Drug Retailing Food & Drug Retailing Drug Retailers
Food Distribution & Convenience Stores
Financials Banking & Investment Services Banking Services Banks
Consumer Financial Services
Specialty Financials
Investment Banking & Investment Services Investment Banking & Brokerage Services
Investment Management & Fund Operators
Diversified Investment Services
Specialty Investment Services
Finanicial & Commodity Market Operators
Diversified Financial Services Diversified Financial Services
Insurance Insurance Multiline Insurance
Property & Casualty Insurance
Life & Health Insurance
Reinsurance
Insurance Brokers
Real Estate Real Estate Operations Real Estate Development & Operations
Real Estate Services
Residential & Commercial REITs Diversified REITs
Commercial REITs
Residential REITs
Investment Trusts Investment Trusts Investment Trusts
Healthcare Healthcare Services Healthcare Equipment & Supplies Advanced Medical Equipment
Medical Equipment, Supplies & Distribution
Healthcare Providers & Services Healthcare Facilities & Services
Managed Healthcare
Pharmaceuticals & Medical Research Pharamaceuticals Diversified Pharmaceuticals
Generic & Specialty Pharmaceuticals
Biotechnology & Medical Research Biotechnology & Medical Research
Technology Technology Equipment Semiconductors & Semiconductor Equipment Semiconductors
Semiconductor Equipment & Testing
Communications Equipment Communications Equipment
Communications & Office Equipment Computer Hardware
Office Equipment
Software & IT Services Software & IT Services IT Services & Consulting
Software
Telecommunications Services Telecommunications Services Telecommunications Services Integrated Telecommunications Services
Wireless Telecommunications Services
Utilities Utilities Electric Utilities Electric Utilities
Natural Gas Utilities Natural Gas Utilities
Water & Other Utilities Water & Other Utilities
Multiline Utilities Multiline Utilities

Source: Thomson Reuters Business Classification (TRBC), 05-26-2010

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