This article series provides a monthly dashboard of industries classified by sectors. It compares valuation and quality factors relative to their historical averages in each industry.
Gas, water and electric utilities are significantly overpriced and close to their historical average in profitability (measured in return on equity). Power producers/traders have mixed metrics: price/sales and profitability are good, but price/earnings is rather bad.
Since last month:
The stocks listed below are in the S&P 1500 index, cheaper than their respective industry factor for price/earnings and price/sales. The 10 companies with the highest return on equity are kept in the final selection. I update every month several lists like this in various sectors. Quantitative Risk & Value Members have an early access to these lists before they are published in free articles. The list was published for subscribers at the beginning of the month based on data available at this time. This is not investment advice. Do your own research before buying.
I take 3 aggregate industry factors: price/earnings (P/E), price to sales (P/S), return on equity (ROE). My choice has been justified here and here. Their calculation aims at limiting the influence of outliers and large caps. They are reference values for stock picking, not for capital-weighted indices.
For each factor, I calculate the difference with its own historical average: to the average for valuation ratios, from the average for ROE, so that the higher is always the better. The difference is measured in percentage for valuation ratios, not for ROE (already in percentage).
The next table reports the 3 industry factors. There are 3 columns for each factor: the current value, the average (“Avg”) between January 1999 and October 2015 taken as an arbitrary reference of fair valuation, and the difference explained above (“D-xxx”).
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