Summary
Each month we take a close look at an aspect of sector investing. This month, we are examining growth and valuation. Investors hunting for stocks that reasonably balance long-term growth prospects and current value characteristics might want to look at companies in the Healthcare, Financial, Information Technology, and Communication Services sectors. These are among the industry groups that are currently selling for PEGY ratios — (price/earnings)/(growth+yield) — at or below the S&P 500’s ratio of 2.0. 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, this in order to achieve a less-volatile earnings growth rate trend. We then add the current yield to approximate total return. As an example, the current S&P 500 P/E ratio is 22.5, the current yield is 1.2% and the historical growth rate is 10.0%. The formula is 22.5/(1.2+10.0) and equals 2.1. Sectors with favorable growth and valuation characteristics, in addition to the three listed above, also include Energy and Materials. Premium-valued sectors with low growth rat
Source: finance.yahoo.com