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Summary 3 key factors are reported across industries in Utilities. They give a valuation status of industries relative to their history. They give a reference for picking stocks in each industry. 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, and includes also mid and small cap companies. It covers Utilities. 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 Three industry factors calculated by portfolio123 are extracted from the database: Price/Earnings (P/E), Price to sales (P/S), 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. The price-to-cash-flow ratio used in my dashboards for other sectors has been eliminated here, because discontinuities and outliers make it often irrelevant in Utilities. Industry valuation table on 11/4/2015 The next table reports the 3 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 ROE Avg D-ROE Electric Utilities 18.13 15.94 -13.74% 1.77 1.22 -45.08% 8.94 10.43 -1.49 Gas Utilities 21.8 17.24 -26.45% 1.46 0.97 -50.52% 10.34 11.49 -1.15 Multi-Utilities 19 16.59 -14.53% 1.67 0.95 -75.79% 10.22 9.48 0.74 Water Utilities 22.89 23.68 3.34% 4.7 3.94 -19.29% 3.5 7.96 -4.46 Ind.Power Prod. & Energy Traders* 34.92 34.9 -0.06% 3.33 4.16 19.95% -4.22 -5.15 0.93 * 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: Quality (ROE) Relative Momentum The next chart compares the price action of the SPDR Select Sector ETF (NYSEARCA: XLU ) with SPY (chart from freestockcharts.com). (click to enlarge) Conclusion Utilities have played their traditional defensive role during the correction in August, but XLU has slightly underperformed the broad market last 6 months. Looking at the valuation and quality charts above, only one industry looks attractive: Independent Power Producers and Energy Traders. Its industry P/E factor points to a fair pricing, and the 2 other factors are better than their historical averages. At the opposite, Electric and Gas Utilities look the less attractive, the 3 factors being worse than 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 Utilities beating their industry factors is provided on this page . If you want to stay informed of my updates, click the “Follow” tab at the top of this article. You can choose the “real-time” option if you want to be instantly notified. Scalper1 News
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