Best-Looking Sectors For The Year Ahead

12/15/2014


Investors can assess the investment appeal of market sectors in many ways. Here are just four:

Valuation

The average stock in the S&P 1500 Index trades at 22 times trailing earnings and a 9% premium to its five-year average. Sector averages are more tightly grouped than usual, with only energy and utilities under 20 times trailing earnings and only health care and telecom above 26 times. Most sectors — including several with comparatively low absolute P/E ratios — look expensive relative to historical norms. Only one sector — energy — looks cheap from both angles.

Our screen considered Quadrix Value scores, absolute and relative P/E, and absolute and relative price/sales. Three sectors scored in the top half for all five metrics:

• Energy
• Industrials
• Materials

Price action

Over the last year, S&P 1500 health-care stocks outperformed the other nine sectors. Health care was also among the top performers over the last three and six months. In contrast, the energy, industrials, and materials sectors have underperformed for the last full year and the two shorter periods.

To gauge which sectors enjoyed the best share-price momentum, we required that the average performance for their stocks be among the top five of the 10 sectors in performance over the last three, six, and 12 months:

• Consumer staples
• Health care
• Technology
• Utilities

Fundamentals

This one is simple. Our Overall score considers nearly 100 statistics in six categories, and top scorers tend to be strong in multiple areas. Here are the three sectors that average the highest Overall scores:

• Consumer discretionary
• Energy
• Industrials

Profit-estimate trends

The last few months have not been friendly to profit estimates. Over the last 90 days, the average S&P 1500 company has seen declines in the consensus for the current quarter (down 5%) and the next fiscal year (3%.) Against that backdrop, we identified three sectors that ranked in the top half based on our Quadrix Earnings Estimates score and revision trends for the current quarter and next year:

• Financials
• Health care
• Utilities

What it all means

We recommend investors purchase a diversified portfolio of high-quality, high-potential, reasonably valued stocks. Our buy lists reflect that approach. However, we acknowledge that every investor has personal preferences. If one of the screens on this page resonates with you more than the others, feel free to pay particular attention to that screen.

Our recommended list includes stocks in eight of the 10 market sectors. Utility investors should consider our Top 15 Utilities portfolio.

SECTOR COMPARISON
All numbers except company count are averages. Quadrix scores are percentile ranks, with 100 the best.
--------------------- Valuation ---------------------
Estimate-Revision Trends
Price/Earnings
-- Price/Sales --
Revi
------ Total Return ------
Sector (No. Of Cos.)
Quadrix
Value
Score
Trailing
Vs. 5-
Year
Avg.
Trailing
Vs. 5-
Year
Avg.
Quadrix
Earns.
Ests.
Score
Curr.
Qtr.
(%)
Next
Fiscal
(%)
3
Mos.
(%)
6
Mos.
(%)
1
Year
(%)
Quadrix
Overall
Score
Con. Discretionary (235)
55
21.6
1.16
1.5
1.18
52
(6)
(3)
5
6
8
62
Consumer Staples (72)
47
22.9
1.20
1.9
1.23
46
(4)
(2)
7
6
15
52
Energy (98)
80
16.7
0.84
1.6
0.71
25
(18)
(23)
(30)
(33)
(23)
63
Financials (291)
57
22.8
1.06
4.3
1.27
58
0
(1)
7
7
14
62
Health Care (157)
42
26.3
1.25
3.1
1.28
54
(2)
0
10
15
21
55
Industrials (220)
58
21.3
1.06
1.6
1.19
51
(6)
(3)
2
0
8
63
Materials (101)
59
21.1
1.08
1.4
1.11
43
(9)
(3)
(3)
(2)
5
56
Technology (251)
50
22.9
0.99
3.0
1.15
52
(6)
(2)
6
9
14
59
Telecom Services (15)
61
26.4
1.13
1.6
1.11
44
(5)
1
(2)
5
13
52
Utilities (60)
62
18.6
1.13
1.8
1.26
60
(1)
0
9
11
24
59
S&P 1500 Index (1,500)
56
22.0
1.09
2.5
1.18
51
(5)
(3)
3
4
10
60

 


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com