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Summary 4 key factors are reported across industries in the Consumer Discretionary sector. They give a valuation status of industries relative to their history. They give a reference for picking stocks at a reasonable value. This article is part of a series giving a valuation dashboard by sector of companies in the S&P 500 index (NYSEARCA: SPY ). I follow up a certain number of fundamental factors for every sector, and compare them to historical averages. This article is going down at industry level in the GICS classification. It covers Consumer Discretionary. The choice of the fundamental ratios has been justified here and here . You can find in this article numbers that may be useful in a top-down approach. There is no analysis of individual stocks. A link to a list of individual stocks to consider is provided at the end. Methodology Four industry factors calculated by portfolio123 are extracted from the database: Price/Earnings (P/E), Price to sales (P/S), Price to free cash flow (P/FCF), Return on Equity (ROE). They are compared with their own historical averages “Avg”. The difference is measured in percentage for valuation ratios and in absolute for ROE, and named “D-xxx” if xxx is the factor’s name (for example D-P/E for price/earnings). The industry factors are proprietary data from the platform. The calculation aims at eliminating extreme values and size biases, which is necessary when going out of a large cap universe. These factors are not representative of capital-weighted indices. They are useful as reference values for picking stocks in an industry, not for ETF investors. Industry valuation table on 11/2/2015 The next table reports the 4 industry factors. For each factor, the next “Avg” column gives its average between January 1999 and October 2015, taken as an arbitrary reference of fair valuation. The next “D-xxx” column is the difference as explained above. So there are 3 columns for each ratio. P/E Avg D- P/E P/S Avg D- P/S P/FCF Avg D- P/FCF ROE Avg D-ROE Auto Components 18.17 15.33 -18.53% 0.8 0.62 -29.03% 45.52 21.23 -114.41% 10.44 3.9 6.54 Automobiles 14.35 17.67 18.79% 1.02 1.06 3.77% 16.58 21.97 24.53% 15.1 0.21 14.89 Household Durables 19.24 15.46 -24.45% 0.89 0.59 -50.85% 31.14 16.33 -90.69% 9.04 5.3 3.74 Leisure Equip.&Products 23.65 17.82 -32.72% 1.2 0.84 -42.86% 35.83 22.05 -62.49% 9.54 2.63 6.91 Textile,Apparel,Luxury 17.6 16.34 -7.71% 1.07 0.71 -50.70% 27.43 17.23 -59.20% 12.15 7 5.15 Hotels, Restaurants, Leisure 28.5 21.67 -31.52% 1.43 1.04 -37.50% 30.66 24.18 -26.80% 8.96 4.51 4.45 Div. Consumer Services* 26.05 21.49 -21.22% 1.41 1.4 -0.71% 15.58 18.64 16.42% 1.08 11.35 -10.27 Media 21.57 23.31 7.46% 1.81 1.55 -16.77% 22.28 19.9 -11.96% 3.44 -3.45 6.89 Distributors 19.47 14.32 -35.96% 1.76 0.48 -266.67% 36.08 16.28 -121.62% 10.24 3.18 7.06 Internet&Catalog Retail 30.77 37.37 17.66% 1.35 1.8 25.00% 24.02 32.11 25.19% 4.31 -14.7 19.01 Multiline Retail 20.3 19.41 -4.59% 0.5 0.48 -4.17% 25.27 26.81 5.74% 7.1 10.44 -3.34 Specialty Retail 19.9 17.95 -10.86% 0.6 0.56 -7.14% 25.05 21.87 -14.54% 11.78 9.85 1.93 *Averages since 2005 Valuation The following charts give an idea of the current status of industries relative to their historical average. In all cases, the higher the better. Price/Earnings: Price/Sales: Price/Free Cash Flow: Quality Relative Momentum The next chart compares the price action of the SPDR Select Sector ETF (NYSEARCA: XLY ) with SPY. (click to enlarge) Conclusion The Consumer Discretionary sector has widely outperformed the broad market in the last 6 months. It hit a new all-time high last week. Automobiles (the group of car and motorcycle manufacturers) and Internet & Catalog Retail look the most interesting industries now: they are underpriced relative to historical averages for the 3 valuations factors, and quality is above historical averages. However, there may be quality stocks at a reasonable price in any industry. To check them out, you can compare individual fundamental factors to the industry factors provided in the table. As an example, a list of stocks in Consumer Discretionary beating their industry factors is provided on this page . If you want to stay informed of my updates on this topic and other articles, click the “Follow” tab at the top of this article. Scalper1 News
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