Energy And Materials Dashboard - Update

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About: Materials Select Sector SPDR ETF (XLB), XLE, Includes: APC, CC, CEIX, DNR, EOG, FCX, HES, LYB, NBL, NUE, POL, PXD, REGI, SLGN, STLD
by: Fred Piard
Summary

Valuation metrics in energy and materials.

Evolution since last month.

A list of stocks looking cheap in their industries.

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

Energy equipment services, oil/gas, metals/mining and paper/wood are significantly underpriced regarding historical averages. However, energy equipment/services is far below the historical baseline in profitability measured by return on equity, whereas paper/wood is above it. Chemicals are moderately overpriced and construction materials are not far behind. Packaging is significantly overpriced, but it is the best in profitability metric, which may partly justify overpricing.

Since last month:

  • P/E has improved a bit in chemicals, metals, paper/wood and packaging, and deteriorated in energy.

  • P/S has improved in paper/wood, and deteriorated in chemicals, packaging and metals.

  • P/FCF has improved in all industries except chemicals.

  • ROE has improved in energy equipment/services, and deteriorated in other industries.

  • The Energy Select Sector SPDR ETF (XLE) has lagged the SPDR S&P 500 ETF by 0.5%. The Materials Select Sector SPDR ETF (XLB) has outperformed it by 1.3%.

  • The five S&P 500 stocks in energy and materials with the best momentum in 1 month are Anadarko Petroleum Corp. (APC), EOG Resources Inc. (EOG), Hess Corp. (HES), Noble Energy Inc. (NBL), and Pioneer Natural Resources Co. (PXD).

Some cheap stocks in their industries

The stocks listed below are in the S&P 1500 index, cheaper than their respective industry factor for price/earnings (excluding extraordinary items), price/sales and price/free cash flow. The 10 companies with the highest return on equity are kept in the final selection. Quantitative Risk & Value members have every month an early access to the cheap stock lists in all sectors before they are published in free-access articles. This is not investment advice. Do your own research before buying.

CEIX

CONSOL Energy Inc.

OILGASFUEL

DNR

Denbury Resources Inc.

OILGASFUEL

REGI

Renewable Energy Group Inc.

OILGASFUEL

CC

Chemours Co.

CHEM

LYB

LyondellBasell Industries NV

CHEM

POL

PolyOne Corp.

CHEM

FCX

Freeport-McMoRan Inc.

METAL

NUE

Nucor Corp.

METAL

STLD

Steel Dynamics Inc.

METAL

SLGN

Silgan Holdings Inc.

PACKAGING

Detail of valuation and quality indicators in energy and materials on 4/15/2019

I take 4 aggregate industry factors: price/earnings (P/E), price to sales (P/S), price to free cash flow (P/FCF), and 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

Energy Equip./Sces

22.04

24.2

8.91%

0.91

1.73

47.26%

26.41

35.34

25.26%

-8.72

7.34

-16.06

Oil/Gas

13.38

18.53

27.78%

1.79

3.35

46.42%

23.86

29.03

17.82%

2.72

4.47

-1.75

Chemicals

18.92

18.48

-2.40%

1.50

1.21

-24.32%

25.72

25.37

-1.39%

9.46

6.74

2.72

Construction Materials

25.59

21.44

-19.36%

1.47

1.16

-26.40%

37.81

40.5

6.65%

-0.14

5.77

-5.91

Packaging

19.76

17.96

-10.02%

1.10

0.61

-80.89%

28.24

20.09

-40.57%

17.71

8.34

9.37

Metals/Mining

13.08

19.83

34.03%

2.19

2.65

17.24%

18.38

25.53

28.01%

-15.87

-8.6

-7.27

Paper/Wood

12.62

21.27

40.65%

0.69

0.72

3.64%

13.83

22.81

39.36%

12.32

4.99

7.33

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 XLB and XLE with the benchmark in 1 month.

Chart by TradingView

Disclosure: I am/we are long NUE. 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.