Valuation Dashboard: Consumer Discretionary - Update

| About: Consumer Discretionary (XLY)

Summary

4 key fundamental factors across industries in the Consumer Discretionary sector.

A valuation status relative to history.

A reference for picking stocks in each industry.

This series provides a valuation dashboard using the GICS classification. Each sector is covered once a month. This issue covers Consumer Discretionary. It aims at giving reference values for a top-down approach across industries. A list of stocks to consider is offered in the conclusion without detailed analysis.

Methodology

I take 4 aggregate industry factors provided by portfolio123: Price/Earnings (P/E), Price to sales (P/S), Price to free cash flow (P/FCF), 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).

Industry valuation table on 4/6/2016

The next table reports the 4 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").

P/E

Avg

D- P/E

P/S

Avg

D- P/S

P/FCF

Avg

D- P/FCF

ROE

Avg

D-ROE

Auto Components

15.38

15.33

-0.33%

0.71

0.62

-14.52%

22.28

21.23

-4.95%

8.85

3.9

4.95

Automobiles

13.61

17.67

22.98%

0.94

1.06

11.32%

15.06

21.97

31.45%

18.49

0.21

18.28

Household Durables

15.95

15.46

-3.17%

0.77

0.59

-30.51%

27.63

16.33

-69.20%

9.1

5.3

3.8

Leisure Equip.&Prod.

20.31

17.82

-13.97%

1.21

0.84

-44.05%

32.3

22.05

-46.49%

12.81

2.63

10.18

Textile,Apparel,Luxury

19.73

16.34

-20.75%

1.15

0.71

-61.97%

28.94

17.23

-67.96%

12.26

7

5.26

Hotels,Restau.,Leisure

24.77

21.67

-14.31%

1.31

1.04

-25.96%

28.43

24.18

-17.58%

10.94

4.51

6.43

Div. Consumer Sces*

22.88

21.49

-6.47%

1.25

1.4

10.71%

16.97

18.64

8.96%

0.68

11.35

-10.67

Media

23.47

23.31

-0.69%

1.36

1.55

12.26%

20.12

19.9

-1.11%

3.11

-3.45

6.56

Distributors

20.07

14.32

-40.15%

N/A

0.48

N/A

49.57

16.28

-204.48%

10.57

3.18

7.39

Internet&Catalog Retail

67.2

37.37

-79.82%

1.33

1.8

26.11%

37.12

32.11

-15.60%

-0.26

-14.7

14.44

Multiline Retail

24.49

19.41

-26.17%

0.45

0.48

6.25%

24.97

26.81

6.86%

7.32

10.44

-3.12

Specialty Retail

18.8

17.95

-4.74%

0.59

0.56

-5.36%

29.38

21.87

-34.34%

11.61

9.85

1.76

Click to enlarge

*Averages since 2005

Valuation

The following charts give an idea of the current status of industries relative to their historical average. The higher is the better.

Price/Earnings:

Price/Sales:

Price/Free Cash Flow:

Quality (ROE)

Relative Momentum

The next chart compares the price action of the SPDR Select Sector ETF ( XLY) with SPY (chart from freestockcharts.com).

Click to enlarge

Conclusion

The returns of XLY and SPY are equal in the last 3 months. The five S&P 500 consumer discretionary stocks with the best 3-month momentum are Coach Inc (NYSE:COH), Michael Kors Holdings Ltd (NYSE:KORS), PVH Corp (NYSE:PVH), Urban Outfitters Inc (NASDAQ:URBN), Wynn Resorts Ltd (NASDAQ:WYNN).

Since last month, Internet&Catalog Retail has deteriorated in P/E, but improved in P/FCF. P/FCF has deteriorated slightly for Household Durables, Leisure Equipments, Textile Apparel, and a lot for Distributors. ROE has deteriorated for Automobiles and improved for Leisure Equipments and Multiline Retail.

The Automobiles Industry is still the most attractive group, with all factors above the baseline. Media looks fairly valued and above the baseline in quality (ROE). For Internet and Catalog Retail, a bad P/E is tempered by a median ROE far above the baseline. Other industries are much less appealing.

There may be quality stocks at a reasonable price in any industry. To check them out, you can compare individual fundamental factors to the industry factors provided in the table. The next table shows a list of stocks in the Consumer Discretionary sector. They are all cheaper than their respective industry for the 3 valuation factors simultaneously: Price/Earnings, Price/Sales, Price/Free Cash Flow. Then they are selected for their higher Return on Equity. This screen updated and rebalanced monthly has an annualized return about 12.51%. The sector ETF XLY has an annualized return of 8.21% on the same period. Past performance, real or simulated, is not a guarantee of future return. To avoid large drawdowns shown by historical data, this list may be considered an entry point for further due diligence, or as a portfolio after adding a few trading rules and market timing. This is not investment advice. Do your own research before buying.

ABG

Asbury Automotive Group Inc

RETAILSPECIAL

AN

AutoNation Inc

RETAILSPECIAL

BIG

Big Lots Inc

STORE

F

Ford Motor Co

MANUFAUTOCYCLE

FOSL

Fossil Group Inc

WEARABLE

GME

GameStop Corp.

RETAILSPECIAL

OMC

Omnicom Group Inc.

MEDIA

OUTR

Outerwall Inc

RETAILSPECIAL

STRA

Strayer Education Inc

SVCEDIV

VIAB

Viacom Inc

MEDIA

Click to enlarge

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Data provided by portfolio123.

Disclosure: I/we 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.