Argus Research

Daily Spotlight: Values in Healthcare, Financial, Tech

Investors hunting for stocks that reasonably balance long-term growth and current value characteristics might want to look at companies in the Financial Services, Technology and Healthcare sectors. These are among the industry groups that currently are selling for (price/earnings)/(growth+yield) ratios at or below the S&P 500’s ratio of 2.3x. To generate the PEGY ratios, we use the P/E ratio for each sector based on forward earnings for the numerator. For the denominator, we average the growth rates for the past five years along with two years of forward estimates, in order to achieve a smoother, less-volatile, earnings trend. Then we add the current yield, to approximate total return. Premium-valued sectors with low growth rates include Consumer Staples and Utilities. Our over-weight sectors include Healthcare, Financial Services, Industrial, Materials and Technology. Our under-weight sectors include Consumer Staples and Consumer Discretionary.

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