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# Cooking Sectorial P/E Valuation

Recently a SA article of RoseNose ("To Win The Investing Gambling Game Know The Cards And Terms Needed To Play") brought to my attention the sectorial P/E, and the importance to take it in consideration in the due diligence. I thought this was a valid point and decided to study it and look for a reliable source to add it to my selection process.

First point was where to find that reliable source? At the time, I didn't know so I decided to calculate it by myself.

I collected P/E and sectors from Morningstar and prepared 2 sets of tables:

SET 1: For 504 stocks of the S&P 500 index

SET 2: For all 6,713 stocks.

I classified each set by Sectors and Financial grade. This double check would help to validate the process and provide additional information.

Once I did it and obtained the results, RoseNose also came up with a web source for S&P500 P/E by sectors: GuruFocus ( http://www.gurufocus.com/sector_shiller_pe.php ), and it became evident that there was discrepancies with data shown in RoseNose's initial article, data provided in that site webs, and my own calculations.

If I wanted that my calculations became in line with published information I had to:

1. Remove companies with zero P/E (or just not showing P/E) and
2. Remove those whose P/E was above a certain level (P/E>75).

It follows the tables I created by compiling the above data and information. If you study them I am sure you will arrive to several interesting conclusions and practical information to help your investing.

For example, the importance of considering financial grade on top P/E metrics. Let's assume you study purchasing a S&P500 company, let's call it XXX, in Consumer Cyclical, with a P/E of 17.0. As mean value for S&P500 in that sector is 20.4, you think it is a good choice. But it may not be if that company has a financial grade of C. S&P500 in Consumer Cyclical with financial C have a P/E of 15.0. Conclussion XXX may not be a good choice.

Is S&P500 Sectorial P/E "cooked"?. What do I need to look at? Does it make sense that worse financial companies to have a P/E lower? How can I use all this P/E information? Is it worthy?....

SET 1a: Sectorial P/E study for S&P500

 "Raw" Price/Earnings "0" >Price/Earnings "Cooked" Price/Earnings S&P500 All<>0 # Stocks Earnings>0 # Stocks >0& <75 # Stocks Basic Materials 29.76 21 34.72 18 25.57 17 Consumer Cyclical 52.29 84 53.56 82 20.41 79 Financial Services 15.45 67 15.92 65 15.92 65 Real Estate 66.79 25 69.57 24 35.85 20 Consumer Defensive 32.72 40 33.56 39 29.30 38 Energy 28.90 38 73.20 15 28.27 12 Healthcare 37.39 57 40.99 52 27.37 48 Utilities 20.88 28 23.39 25 23.39 25 Communication Services 58.49 10 64.99 9 26.13 7 Industrials 22.73 75 23.03 74 23.03 74 Technology 28.12 59 31.30 53 26.81 51 S&P 500 33.32 504 36.83 456 23.86 436 Financial Grade A Basic Materials 24.99 6 24.99 6 24.99 6 Consumer Cyclical 24.72 20 24.72 20 24.72 20 Financial Services 20.13 9 20.13 9 20.13 9 Real Estate 41.58 8 41.58 8 41.58 8 Consumer Defensive 32.13 23 32.13 23 32.13 23 Energy 0.00 0 0.00 0 0.00 0 Healthcare 38.43 19 38.43 19 32.65 17 Utilities 21.63 12 21.63 12 21.63 12 Communication Services 52.38 3 52.38 3 40.77 2 Industrials 22.55 32 22.55 32 22.55 32 Technology 28.19 25 29.37 24 29.37 24 Financial Grade B Basic Materials 25.20 9 28.35 8 28.35 8 Consumer Cyclical 30.64 32 30.64 32 22.25 31 Financial Services 20.35 12 20.35 12 20.35 12 Real Estate 85.22 15 91.31 14 32.56 10 Consumer Defensive 34.88 14 34.88 14 22.52 13 Energy 31.24 8 62.48 4 34.23 3 Healthcare 37.75 30 41.94 27 25.55 26 Utilities 19.01 11 23.23 9 23.23 9 Communication Services 22.32 3 22.32 3 22.32 3 Industrials 24.53 27 24.53 27 24.53 27 Technology 27.82 21 30.74 19 27.68 18 Financial Grade C Basic Materials 58.71 4 78.27 3 22.28 2 Consumer Cyclical 16.04 30 17.18 28 15.03 27 Financial Services 13.04 35 13.83 33 13.83 33 Real Estate 29.40 2 29.40 2 29.40 2 Consumer Defensive 40.77 2 40.77 2 40.77 2 Energy 30.90 26 89.27 9 27.41 7 Healthcare 34.14 7 47.79 5 16.14 4 Utilities 23.23 5 29.03 4 29.03 4 Communication Services 120.28 3 120.28 3 17.20 2 Industrials 20.03 16 21.36 15 21.36 15 Technology 30.28 12 40.38 9 19.74 8 Financial Grade D Basic Materials 6.74 2 13.48 1 13.48 1 Consumer Cyclical 1218.10 2 1218.10 2 22.47 1 Financial Services 13.93 11 13.93 11 13.93 11 Real Estate 0.00 0 0.00 0 0.00 0 Consumer Defensive 0.00 1 0.00 0 0.00 0 Energy 11.18 4 22.35 2 22.35 2 Healthcare 29.89 1 29.89 1 29.89 1 Utilities 0.00 0 0.00 0 0.00 0 Communication Services 0.00 1 0.00 0 0.00 0 Industrials 0.00 0 0.00 0 0.00 0 Technology 6.42 1 6.42 1 6.42 1 Financial Grade F Basic Materials 0.00 0 0.00 0 0.00 0 Consumer Cyclical 0.00 0 0.00 0 0.00 0 Financial Services 0.00 0 0.00 0 0.00 0 Real Estate 0.00 0 0.00 0 0.00 0 Consumer Defensive 0.00 0 0.00 0 0.00 0 Energy 0.00 0 0.00 0 0.00 0 Healthcare 0.00 0 0.00 0 0.00 0 Utilities 0.00 0 0.00 0 0.00 0 Communication Services 0.00 0 0.00 0 0.00 0 Industrials 0.00 0 0.00 0 0.00 0 Technology 0.00 0 0.00 0 0.00 0

SET 1b: Sectorial P/E study for S&P500 (weighted by Market Capital)

 Price/Earnings Weighted Price/Earnings Weighted Price/Earnings Weighted S&P500 All <>0 # of Stocks Earnings>0 # of Stocks >0& <75 # of Stocks Basic Materials 32.62 2769.55 34.65 2606.9 26.44 2421.12 Consumer Cyclical 21.27 577.58 22.37 549.04 22.37 549.04 Financial Services 37.55 787.99 37.84 782 19.69 709.68 Real Estate 25.18 2103.81 25.31 2092.75 25.31 2092.75 Consumer Defensive 30.36 3805.91 31.39 3680.77 28.26 3608.85 Energy 35.54 19577.83 37.31 18649.7 24.54 17531.97 Healthcare Utilities 25.28 163.27 25.28 163.27 25.28 163.27 Communication Services 23.73 908.3 23.73 908.3 23.73 908.3 Industrials 20.62 751.23 20.62 751.23 20.62 751.23 Technology 39.35 209.79 39.35 209.79 39.35 209.79 S&P 500 W 29.84 1373.64 29.84 1373.64 29.84 1373.64 Financial Grade A 0.00 0.00 0.00 0.00 0.00 0.00 Basic Materials 36.21 1250.95 36.21 1250.95 31.12 1116.48 Consumer Cyclical 21.44 272.98 21.44 272.98 21.44 272.98 Financial Services 27.78 296.5 27.78 296.5 22.02 264.63 Real Estate 21.45 866.9 21.45 866.9 21.45 866.9 Consumer Defensive 31.95 2199.84 32.76 2145.3 32.76 2145.3 Energy Healthcare 23.34 211.44 24.08 204.98 24.08 204.98 Utilities 116.10 965.3 116.10 965.3 23.97 632.01 Communication Services 19.09 292.19 19.09 292.19 19.09 292.19 Industrials 70.09 304.17 74.09 287.74 32.50 230.92 Technology 42.44 770.44 42.44 770.44 18.77 667.3 Financial Grade B 54.19 854.55 64.61 716.63 34.50 525.2 Basic Materials 29.71 1302.01 31.04 1246.38 22.73 1223.12 Consumer Cyclical 20.53 233.57 22.88 209.56 22.88 209.56 Financial Services 18.79 179.31 18.79 179.31 18.79 179.31 Real Estate 23.69 738.81 23.69 738.81 23.69 738.81 Consumer Defensive 21.89 1413.38 22.66 1365.56 22.18 1355.34 Energy Healthcare 71.16 62.29 89.21 49.69 27.12 30.78 Utilities 14.26 362.06 14.81 348.84 12.99 338.71 Communication Services 12.26 1321.05 12.88 1258.02 12.88 1258.02 Industrials 29.78 19.49 29.78 19.49 29.78 19.49 Technology 42.18 43.07 42.18 43.07 42.18 43.07 Financial Grade C 53.27 444.06 185.81 127.32 21.67 63.37 Basic Materials 29.30 205.17 61.25 98.15 15.98 70.1 Consumer Cyclical 23.02 71.03 24.59 66.5 24.59 66.5 Financial Services 58.74 306.19 58.74 306.19 17.99 265.74 Real Estate 33.87 498.1 34.64 487.04 34.64 487.04 Consumer Defensive 83.23 170.25 96.09 147.47 17.39 85.77 Energy Healthcare 4.33 20.56 13.48 6.61 13.48 6.61 Utilities 1855.16 13.1 1855.16 13.1 22.47 3.06 Communication Services 12.41 400.65 12.41 400.65 12.41 400.65 Industrials 0.00 0 0.00 0 0.00 0 Technology 0.00 6.17 0.00 0 0.00 0 Financial Grade D 14.51 36.17 18.79 27.94 18.79 27.94 Basic Materials 29.89 11.42 29.89 11.42 29.89 11.42 Consumer Cyclical 0.00 0 0.00 0 0.00 0 Financial Services 0.00 5.99 0.00 0 0.00 0 Real Estate 0.00 0 0.00 0 0.00 0 Consumer Defensive 6.42 22.44 6.42 22.44 6.42 22.44 Energy Healthcare 0.00 0 0.00 0 0.00 0 Utilities 0.00 0 0.00 0 0.00 0 Communication Services 0.00 0 0.00 0 0.00 0 Industrials 0.00 0 0.00 0 0.00 0 Technology 0.00 0 0.00 0 0.00 0 Financial Grade F 0.00 0 0.00 0 0.00 0 Basic Materials 0.00 0 0.00 0 0.00 0 Consumer Cyclical 0.00 0 0.00 0 0.00 0 Financial Services 0.00 0 0.00 0 0.00 0 Real Estate 0.00 0 0.00 0 0.00 0 Consumer Defensive 0.00 0 0.00 0 0.00 0 Energy 0.00 0 0.00 0 0.00 0 Healthcare 0.00 0 0.00 0 0.00 0 Utilities 0.00 0 0.00 0 0.00 0 Communication Services 0.00 0 0.00 0 0.00 0 Industrials 0.00 0 0.00 0 0.00 0 Technology 0.00 0 0.00 0 0.00 0

SET 2: Sectorial P/E study for all 6,713 stocks.

 "Raw" Price/Earnings ">0" Price/Earnings "Cooked" Price/Earnings All Stock companies ALL # of Stocks Earnings>0 # of Stocks >0& <75 # of Stocks Basic Materials -0.13 827 43.10 226 18.98 208 Consumer Cyclical 26.58 776 81.24 492 21.25 472 Financial Services 24.17 636 43.38 536 17.08 521 Real Estate 15.35 364 66.59 251 25.70 209 Consumer Defensive 7.91 453 37.89 311 24.15 289 Energy 21.20 640 96.07 194 18.15 178 Healthcare 1.45 832 49.44 249 27.77 216 Utilities 23.80 207 49.61 150 18.00 143 Communication Services 16.09 189 39.15 125 22.06 115 Industrials -31.63 895 38.08 503 20.58 482 Technology 9.22 894 62.24 391 24.72 334 All Stocks 7.11 6713 54.91 3428 21.39 3167 Financial Grade A Basic Materials 10.96 64 29.80 34 26.87 33 Consumer Cyclical 1.30 90 26.44 85 25.40 84 Financial Services 5.66 41 19.37 35 19.37 35 Real Estate 41.65 70 56.95 64 30.44 55 Consumer Defensive 13.59 76 30.61 74 27.31 72 Energy 22.64 19 29.12 16 16.25 15 Healthcare 24.36 104 40.96 76 31.52 67 Utilities 17.54 30 18.32 29 18.32 29 Communication Services -21.79 19 26.69 15 26.69 15 Industrials 12.03 131 24.57 121 23.94 120 Technology 41.54 139 54.08 126 28.99 106 Financial Grade B Basic Materials 10.73 197 68.14 91 23.59 83 Consumer Cyclical 24.00 197 34.83 183 23.77 176 Financial Services 111.71 112 122.95 104 17.07 98 Real Estate -13.73 109 53.35 87 25.71 70 Consumer Defensive 19.72 91 32.21 77 25.18 72 Energy 11.31 76 29.86 48 21.36 44 Healthcare 7.43 192 54.02 102 30.41 90 Utilities 9.58 68 33.21 60 19.65 59 Communication Services 40.09 32 49.65 29 20.90 27 Industrials 33.99 196 62.52 173 23.39 161 Technology 34.64 197 100.07 121 26.14 103 Financial Grade C Basic Materials -1.53 194 26.49 52 15.08 47 Consumer Cyclical 10.38 196 20.57 155 18.39 152 Financial Services 18.55 192 21.55 177 17.44 174 Real Estate 32.48 87 64.01 66 25.30 54 Consumer Defensive 29.39 159 46.93 121 22.67 111 Energy 60.64 194 187.52 77 21.11 67 Healthcare 0.29 196 69.25 37 27.69 29 Utilities 6.70 49 28.46 34 18.97 31 Communication Services 16.45 88 32.89 62 24.23 57 Industrials -9.09 194 22.41 126 19.35 122 Technology -11.99 187 32.57 90 22.30 80 Financial Grade D Basic Materials -3.38 192 18.67 33 9.17 32 Consumer Cyclical -52.45 158 44.39 51 14.45 47 Financial Services 5.43 197 16.57 177 16.17 176 Real Estate 55.49 59 146.59 27 16.93 24 Consumer Defensive -52.19 62 34.98 29 23.47 27 Energy 4.56 181 50.96 43 12.50 42 Healthcare -4.02 197 45.80 24 15.89 20 Utilities 9.60 34 24.93 21 10.67 19 Communication Services 19.52 32 67.93 13 14.62 11 Industrials -34.51 195 25.33 60 13.28 58 Technology -4.74 187 33.87 40 17.35 35 Financial Grade F Basic Materials -11.00 180 33.40 16 7.78 13 Consumer Cyclical 163.21 135 1438.73 18 18.43 13 Financial Services -21.32 94 70.67 43 17.60 38 Real Estate -49.54 39 35.18 7 20.71 6 Consumer Defensive -10.43 65 34.53 10 7.25 7 Energy -1.85 170 10.74 10 10.74 10 Healthcare -14.11 143 2.75 10 2.75 10 Utilities 119.04 26 571.08 6 18.62 5 Communication Services 5.52 18 21.73 6 6.08 5 Industrials -156.73 179 44.52 23 7.10 21 Technology -6.64 184 80.42 14 10.07 10

SET 3: Sectorial list at GuruFocus

 S&P500 sectorial list at GuruFocus S&P500 Shiller P/E Regular P/E # of stocks Basic Materials 24.4 33.5 22 Consumer Cyclical 25.4 20.4 83 Financial Services 19 12 67 Real Estate 57 33.9 24 Consumer Defensive 24 25 40 Energy 13.8 -20.4 38 Healthcare 29.1 23.6 56 Utilities 23.8 28.8 29 Communication Services 30.1 16.9 10 Industrials 21.8 19.4 75 Technology 26.9 20.6 61 S&P 500 25.9 23.9 500

Note1: Data was collected at close on June 17th, 2016

Note2: Web sites used:

Additional disclosure: In this article, I share my thoughts with SA readers with the intention to initiate some discussion. Please, do not make any investment decision based in the data I show. Future evolution of stock used in the example or similar ones can make results quite different. Make your own due diligence and take decisions accordingly.