Sectors are broken down into subcategories known as industries. This allows a closer grouping of similar businesses. For example, both Dollar Tree, a discount retail chain, and Tiffany & Company, a luxury jeweler, are included in the consumer discretionary sector. However, they are sorted into different industries.
Why Sectors and Industries Matter
Examining sectors and industries allows you to compare one business to its closest competitors. You may think a certain stock is a good purchase, but until you research its rivals, it’s difficult to know for sure. Looking at sectors and industries helps you become familiar with how businesses interact with one another. For example, if you believe energy prices are going to decline, you might find transportation stocks appealing because you believe one of the biggest cost inputs—gasoline and jet fuel—is about to plummet. When combined with disciplined, long-term investing, such knowledge can be a ticket to building wealth. With exchange-traded funds (ETFs), you can buy a diversified basket of an entire grouping. ETFs are similar to mutual funds but trade like stocks, and allow you to get exposure to a wide range of investments in a sector or industry without needing to research individual stocks. Many financial advisers recommend that investors try to maintain a portfolio that offers good exposure to all of these industries and sectors.
Communication Services
From telephone access to high-speed internet, the communication services sector of the economy keeps us all connected and includes stocks such as AT&T and Verizon. The communication services sector is made up of five industries:
Consumer Discretionary
The consumer discretionary sector consists of businesses that have demand that rises and falls based on general economic conditions. Products in this sector include everything from washers and dryers to sporting goods to new cars to diamond engagement rings and more. Examples of consumer discretionary stocks include Apple, Disney, and Starbucks. The consumer discretionary sector contains 11 industries:
Consumer Staples
The consumer staples sector consists of businesses that sell the necessities of life, ranging from bleach and laundry detergent to toothpaste and packaged food. The consumer staples sector contains six industries and includes companies such as Procter & Gamble and Kroger:
Energy
The energy sector consists of businesses that source, drill, extract, and refine the raw commodities we need to keep the country going, such as oil and gas. Major energy stocks include Exxon Mobil, Chevron, and Halliburton. The energy sector contains two industries:
Financials
The financial sector consists of banks, insurance companies, mortgage real estate investment trusts (REITs), credit card issuers, and a host of other money-centric enterprises that keep the debits and credits of the economy flowing. JPMorgan Chase, Goldman Sachs, and Bank of America are all examples of financial stocks. The financial sector contains seven industries:
Health Care
The health care sector consists of drug companies, medical supply companies, and other scientific-based operations that are concerned with improving and healing human life. Examples of health care stocks include Johnson & Johnson, Gilead, and Pfizer. The health care sector contains six industries:
Industrials
The industrial sector comprises railroads and airlines to military weapons and industrial conglomerates. Major industrial stocks include Lockheed Martin and CSX. The industrial sector contains fourteen industries:
Information Technology
The information technology (IT) sector is home to the hardware, software, computer equipment, and IT services operations that make it possible for you to be reading this right now. From microprocessors to printers, operating systems to cellphone handsets, recent advances in technology have turned IT into a giant part of the domestic and global economies. Top IT stocks include Microsoft and Alphabet. The information technology sector contains six industries:
Materials
The building blocks that supply other sectors with the raw materials they need to conduct business, the materials sector manufacturers, logs, and mines everything from precious metals, paper, and chemicals to shipping containers, wood pulp, and industrial ore. Major materials stocks include Dow, Dupont, Ecolab, and International Paper. The material sector contains five industries:
Real Estate
The real estate sector includes all real estate investment trusts (REITs) with the exception of mortgage REITs, which are housed under the financial sector. The sector also includes companies that manage and develop properties and includes stocks such as American Tower, Simon Property Group, and Prologis. The Real Estate sector is made up of two industries:
Utilities
The utilities sector of the economy is home to the firms that make our lights work when we flip the switch, let our stoves erupt in flame when we want to cook food, make water come out of the tap when we are thirsty, and more. Utilities stocks include many local electricity and water companies including Exelon and Dominion Resources. The utilities sector is made up of five industries:
