This article series provides a monthly dashboard of industries in each sector of the GICS classification. It compares valuation and quality factors relative to their historical averages in each industry.
Executive summary
Airlines are attractive on Price/Earnings (P/E) and Return on Equity (ROE) basis, but not for other factors. Marine looks a bit like a value trap with 3 good valuation factors and the worst ROE. Research/Consulting and Facilities Services look moderately overpriced and close to their historical averages in profitability. Trading Companies are not far behind. Electronic Equipment also look only slightly overvalued, but their profitability is far below the baseline. Other groups are even less attractive. Conglomerates, Airfreight/Logistics and Machinery look the most overpriced.
Since the last issue on Industrials:
P/E has improved in Aerospace/Defense, Building Products, Construction, Conglomerates, Trading Companies, Facilities Services, Airfreight and Airport Services, and deteriorated in Machinery, Research/Consulting, Airlines, and Railroads.
P/S has improved in Construction, Trading Companies, Facilities Services, Airport Services and Marine, and deteriorated elsewhere.
P/FCF has improved in Aerospace/Defense, Construction, Electric Equipment and Facilities Services, and deteriorated elsewhere.
ROE has improved in Aerospace/Defense, Research/Consulting and Airport Services, deteriorated in Electric Equipment, and is stable elsewhere.
In 1 month, the Industrial Select Sector SPDR ETF (NYSEARCA:XLI) has outperformed the SPDR S&P 500 ETF (SPY) by about 1.5%.
The 5 S&P 500 industrial companies with the best momentum in 1 month are Acuity Brands Inc. (AYI), Boeing Co. (BA), Kansas City Southern (KSU), Southwest Airlines Co. (LUV), and United Rentals Inc. (URI).
Some cheap stocks in their industries
The stocks listed below are in the S&P 1500 index, and are cheaper than their respective industry factor for Price/Earnings, Price/Sales and Price/Free Cash Flow. The 10 companies with the highest Return on Equity are kept in the final selection. I update every month 8 lists like this one covering all sectors (some sectors are grouped). The 8 lists together have returned about 25% in 2016. If you want to stay informed of updates, click "Follow" at the top of this page. My Marketplace Subscribers have an early access to the stock lists before they are published in free-access articles. Past performance is not a guarantee of future result. This is not investment advice. Do your own research before buying.
Huntington Ingalls Industries Inc. (HII) | AERODEF |
Hawaiian Holdings Inc. (HA) | AIRLINE |
United Continental Holdings Inc. (UAL) | AIRLINE |
Patrick Industries Inc. (PATK) | BUILDING |
Honeywell International Inc. (HON) | CONGLOMERATE |
EnerSys (ENS) | ELECTRICEQUIP |
Wabash National Corp. (WNC) | MACHINERY |
ManpowerGroup Inc. (MAN) | SERVICEPRO |
Robert Half International Inc. (RHI) | SERVICEPRO |
Viad Corp. (VVI) | SERVICESUPP |
Detail of Valuation and Quality indicators in Industrials on 7/9/2017
I take 4 aggregate industry factors provided by portfolio123 (subscription needed): 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).
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 | |
Aerospace/Defense | 24.21 | 18.02 | -34.35% | 1.46 | 1.02 | -43.14% | 21.5 | 21.28 | -1.03% | 8 | 9 | -1 |
Building Products | 21.7 | 20.14 | -7.75% | 1.4 | 0.64 | -118.75% | 30.75 | 22.38 | -37.40% | 14.7 | 6.07 | 8.63 |
Construction/Engineering | 23.86 | 18.3 | -30.38% | 0.56 | 0.48 | -16.67% | 18.99 | 19.81 | 4.14% | 5.31 | 5.98 | -0.67 |
Elec.Equipment | 21.4 | 18.31 | -16.88% | 1.54 | 1.64 | 6.10% | 23.55 | 21.88 | -7.63% | -18.8 | -3.3 | -15.5 |
Conglomerates | 29.88 | 20.45 | -46.11% | 2.92 | 1.3 | -124.62% | 40.62 | 29.98 | -35.49% | 13.93 | 12.12 | 1.81 |
Machinery | 27.9 | 18.25 | -52.88% | 1.44 | 0.9 | -60.00% | 29.89 | 21.81 | -37.05% | 8.73 | 8.72 | 0.01 |
Trading Companies/Distri | 21.43 | 17.14 | -25.03% | 0.89 | 0.7 | -27.14% | 25.6 | 25 | -2.40% | 6.02 | 8.61 | -2.59 |
Facilities Services | 24.69 | 20.86 | -18.36% | 1.17 | 1.03 | -13.59% | 22.78 | 19.84 | -14.82% | 2.33 | 3.99 | -1.66 |
Research/Consulting* | 26.56 | 24.04 | -10.48% | 1.35 | 1.22 | -10.66% | 20.78 | 17.43 | -19.22% | 7.17 | 3.09 | 4.08 |
AirFreight/Logistics | 44.54 | 21.06 | -111.49% | 0.89 | 0.57 | -56.14% | 35.21 | 32.87 | -7.12% | 11.57 | 11.12 | 0.45 |
Airlines | 13.71 | 15.18 | 9.68% | 1.28 | 0.41 | -212.20% | 22.1 | 12.37 | -78.66% | 27.2 | 3 | 24.2 |
Marine** | 13.88 | 14.04 | 1.14% | 0.85 | 1.41 | 39.72% | 5.6 | 23.27 | 75.93% | -28.96 | 6.05 | -35.01 |
Railroads | 25.27 | 19.17 | -31.82% | 1.32 | 0.86 | -53.49% | 45.33 | 36.17 | -25.32% | 12.23 | 9.43 | 2.8 |
Airport Services** | 13.84 | 23.6 | 41.36% | 1.77 | 1.19 | -48.74% | 20.71 | 20.8 | 0.43% | 8.02 | -3.22 | 11.24 |
*Professional Services: Avg since 2008.
**Factors may vary a lot for some industries with a low number of stocks or a lot of outliers.
The following charts give an idea of the current status of 3 valuation factors (P/E, P/S, P/FCF) and a quality factor (ROE) relative to their historical average in each industry. For all factors, the difference to average is calculated in the direction where positive is good. For valuation ratios lower is better, for ROE higher is better. On the charts below, higher is always better.
Price/Earnings relative to historical average:
Price/Sales relative to historical average:
Price/Free Cash Flow relative to historical average:
ROE relative to historical average:
Momentum
The next chart compares the price action of XLI with SPY in 1 month.
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Data provided by portfolio123 (this is a partner link giving you an extended period of free trial. I may receive a fee if you buy later a paid subscription, at no additional cost to you).