Best-Looking Sectors For The Year Ahead
Investors can assess the investment appeal of market sectors in many ways. Here are just four:
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:
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
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
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:
• Health care
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.