This article series has been releasing every month since 2015 a dashboard with aggregate industry metrics in healthcare (most popular ETFs in this sector: XLV, IYH, IBB, XBI, VHT, XPH).
Shortcut
If you are used to this dashboard series or if you are short of time, you can skip the first paragraphs and go to the charts. However, reading everything once is necessary if you want to use the metrics for stock-picking purposes.
Base Metrics
We calculate the median value of five fundamental ratios for each industry: Earnings Yield ("EY"), Sales Yield ("SY"), Free Cash Flow Yield ("FY"), Return on Equity ("ROE"), Gross Margin ("GM"). Our calculation universe includes large companies in the U.S. stock market. The five base metrics are calculated on trailing 12 months. For all of them, higher is better and negative is bad. EY, SY and FY are medians of the inverse of Price/Earnings, Price/Sales and Price/Free Cash Flow. They are better for statistical studies than price-to-something ratios, which are unusable or non-available when "something" is close to zero or negative (for example, companies with negative earnings). We also calculate two momentum metrics for each group: the median monthly return (RetM) and the median annual return (RetY).
We use medians rather than averages because a median splits a set in a good half and a bad half. A capital-weighted average is skewed by extreme values and the largest companies. Our metrics are designed with a stock-picking mindset, not for index investing.
Value And Quality Scores
We calculate historical baselines for all metrics. They are noted respectively EYh, SYh, FYh, ROEh, GMh, and they are calculated as the averages on a look-back period of 11 years. For example, the value of EYh for Pharma & Biotech in the table below is the 11-year average of the median Earnings Yield in a universe of pharmaceutical and biotechnology companies.
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