Seeking Alpha
Tech, value, hedge fund manager, telecom
Profile| Send Message|
( followers)

The energy sector is modestly undervalued as oil prices continue to linger in a bear market of primary degree; not all companies within the sector are undervalued. Also, given the rise in financial stocks, are any firms still undervalued? Finally, technology stocks, mainly personal computer manufacturers, declined substantially in previous quarters, but are these stocks really undervalued?

To answer these questions, a small sample of some of the sectors will be taken. The price/earnings, price/book value, price/sales, and price/cash flow multiplier model valuations metrics will be used to analyze the value of the common equity securities. Some of the stocks are undervalued and some are overvalued.

Hewlett-Packard (NYSE:HPQ) is undervalued and Lenovo (OTCPK:LNVGY) is overvalued; Bank of America (NYSE:BAC) is undervalued and HSBC (HBC) is overvalued; Shell (NYSE:RDS.B) is undervalued and Exxon (NYSE:XOM) is overvalued.

Tech Valuations

Price/Earnings Price/Book Price/Sales Price/Cash Flow
HP 1.8 0.4 3.5
Dell 9.9 2.2 0.4 7.2
Lenovo 18.1 4.0 0.3 47.2
NEC 1.0 0.2 5.6
Average 14 2.25 0.325 15.88 (5.43*)

*Excluding Lenovo

In this small sample of technology firms, Dell (NASDAQ:DELL) is undervalued on a price/earnings basis and Lenovo is overvalued. On a price/book basis, HP and NEC (OTC:NIPNF) are undervalued and Lenovo is overvalued. On a price/sales basis, all of the firms are fairly valued; this industry appears to be undervalued on a price/sales basis. On a price/cash flow basis (excluding Lenovo), HP is undervalued and Dell is overvalued. Based on the 12 trailing months multiplier model valuations, HP is undervalued and Lenovo is overvalued.

Financials Valuations

Price/Earnings Price/Book Price/Sales Price/Cash Flow
JPMorgan 9.3 1.0 2.1 4.9
Citigroup 18.0 0.8 2.2 5.2
HSBC 12.5 1.2 2.5
Bank of America 41.7 0.7 1.8 5.2
Average 13.26* 0.93 2.15 5.1

*Excludes Bank of America

In this small sample of financial firms, JPMorgan (NYSE:JPM) is undervalued on a price/earnings basis and Citigroup (NYSE:C) is overvalued. On a price/book basis, Bank of America is undervalued and HSBC is overvalued. On a price/sales basis, Bank of America is undervalued and HSBC is overvalued. On a price/cash flow basis, the firms are fairly valued. Based on the 12 trailing months multiplier model valuations, Bank of America is undervalued and HSBC is overvalued.

Energy Valuations

Price/Earnings Price/Book Price/Sales Price/Cash Flow
Exxon 9.4 2.5 0.9 8.4
Chevron 9.3 1.7 1.0 6.6
PetroChina 12.7 1.3 0.6 6.1
Shell 8.5 1.2 0.5 5.0
Average 9.98 1.68 0.75 6.53

On a price/earnings basis, Shell is undervalued and PetroChina (NYSE:PTR) is overvalued. On a price/book basis, Shell and PetroChina are undervalued and Exxon is overvalued. On a price/sales basis, Shell and PetroChina are undervalued and Exxon and Chevron (NYSE:CVX) are overvalued. On a price/cash flow basis, Shell is undervalued and Exxon is overvalued. Thus, Shell is undervalued and Exxon is overvalued.

Sector Relative Valuations

Price/Earnings Price/Book Price/Sales Price/Cash Flow
Technology 14 2.25 0.325 5.43
Financials 13.26 0.93 2.15 5.1
Energy 9.98 1.68 0.75 6.53
Average 12.41 1.62 1.08 5.69

On a price/earnings basis, energy is undervalued. On a price/book basis, financials are undervalued and technology is overvalued. On a price/sales basis, technology and energy are undervalued and financials are overvalued. On a price/cash flow basis, financials are undervalued and energy is overvalued. The sectors appear to be fairly valued, but energy may be modestly undervalued.

In conclusion, investors could get long shares of Shell to benefit from the modestly undervalued energy sector. Investors could also accumulate shares of Bank of America and HP. Further, Exxon, HSBC, and Lenovo could be good short-sale candidates.

This analysis is not meant to cover every aspect of these firms. Investors should conduct their own due diligence before taking investment action.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Estimating Sector Relative Valuations