Author Archives: Scalper1

Best And Worst Q4’15: Utilities ETFs, Mutual Funds And Key Holdings

Summary The Utilities sector ranks fifth in Q4’15. Based on an aggregation of ratings of nine ETFs and 25 mutual funds. RYU is our top-rated Utilities sector ETF and BULIX is our top-rated Utilities sector mutual fund. The Utilities sector ranks fifth out of the ten sectors as detailed in our Q4’15 Sector Ratings for ETFs and Mutual Funds report. Last quarter , the Utilities sector ranked eighth. It gets our Neutral rating, which is based on an aggregation of ratings of nine ETFs and 25 mutual funds in the Utilities sector. See a recap of our Q3’15 Sector Ratings here . Figure 1 ranks from best to worst the nine Utilities ETFs that meet our liquidity standards and Figure 2 shows the five best and worst-rated Utilities mutual funds. Not all Utilities sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 81). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the Utilities sector should buy the Attractive rated mutual fund from Figure 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 (click to enlarge) * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 (click to enlarge) * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings The Guggenheim S&P Equal Weight Utilities ETF (NYSEARCA: RYU ) is the top-rated Utilities ETF and the American Century Quantitative Equity Funds Utilities Fund (MUTF: BULIX ) is the top-rated Utilities mutual fund. RYU earns a Neutral rating and BULIX earns an Attractive rating. The PowerShares S&P SmallCap Utilities Portfolio ETF (NASDAQ: PSCU ) is the worst-rated Utilities ETF and the Rydex Utilities Fund (MUTF: RYUTX ) is the worst-rated Utilities mutual fund. Both earn a Very Dangerous rating. 79 stocks of the 3000+ we cover are classified as Utilities stocks, but due to style drift, Utilities ETFs and mutual funds hold 81 stocks. PPL Corporation (NYSE: PPL ) is our favorite stock in the Utilities sector and is the only Utilities stock that earns an Attractive-or-better rating. Since 2010, PPL has grown after-tax profit ( NOPAT ) by 9% compounded annually. While PPL’s 6% return on invested capital ( ROIC ) may not seem impressive, it ranks among the top in the Utilities sector. At its current price of $34/share, PPL has a price to economic book value ( PEBV ) ratio of 0.7. This ratio implies that the market expects PPL’s NOPAT to permanently decline by 30%. This expectation seems unlikely considering PPL’s profit growth over the life of its business. If we assume that PPL can only grow NOPAT by 3% compounded annually for the next decade , which is well below the historical profit growth rate for PPL, the company is worth $51/share – a 50% upside. Dominion Resources (NYSE: D ) is one of our least favorite stocks held by Utilities ETFs and mutual funds. We’ve previously highlighted the unrealistic pension assumptions Dominion uses to boost earnings but that is not the only problem in the business. The company’s NOPAT has declined by 2% compounded annually since 2010. Over the same period, the company’s ROIC has fallen to 5% and Dominion earns a -11% free cash flow yield . Despite these poor fundamentals, D remains overvalued. To justify its current price of $70/share, Dominion must grow NOPAT by 6% compounded annually for the next 14 years . This expectation is rather optimistic given that Dominion has failed to grow profits at all over the past five years and that the company operates in a sector where profit growth rates are rarely that high for any sustained amount of time. Figures 3 and 4 show the rating landscape of all Utilities ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst ETFs (click to enlarge) Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds (click to enlarge) Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Thaxston McKee receive no compensation to write about any specific stock, sector or theme.

Valuation Dashboard: Financials – November 2015

Summary 4 key factors are reported across industries in the Financial sector. 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 goes down to the industry level in the GICS classification. It covers Financials. 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 11/4/2015 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 Commercial Banks 15.42 15.24 -1.18% 2.97 2.06 -44.17% 19.79 13.44 -47.25% 8.78 8.89 -0.11 Thrifts & Mortgage Finance* 18.66 20.66 9.68% 2.97 2.03 -46.31% 21.55 14.75 -46.10% 6.25 5.02 1.23 Diversified Financial Services 21.45 17.85 -20.17% 4.36 2.94 -48.30% 19.78 16.13 -22.63% 8.04 6.38 1.66 Consumer Finance* 11.58 13.15 11.94% 1.64 1.47 -11.56% 6.68 8.22 18.73% 13.36 11.83 1.53 Capital Markets* 16.39 18.07 9.30% 3.58 3.06 -16.99% 19.55 19.62 0.36% 8.96 7.89 1.07 Insurance 14.24 13.7 -3.94% 1.29 1.07 -20.56% 10.77 8.99 -19.80% 9.31 8.71 0.6 REITs** 35.85 35.42 -1.21% 5.36 4.56 -17.54% 49.26 38.74 -27.16% 5.24 4.07 1.17 Real Estate Management** 30.22 31.19 3.11% 3.79 3.06 -23.86% 24.68 25.55 3.41% 4.27 -1.33 5.6 * Averages since 2003 – ** Averages since 2006 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 (ROE) Relative Momentum The next chart compares the price action of the SPDR Select Sector ETF (NYSEARCA: XLF ) with SPY (chart from freestockcharts.com). (click to enlarge) Conclusion XLF and SPY have distinct ways but very similar returns in the last 6 months. From the valuation charts above, we can note that some industries look overpriced, but all of them are above or close to their historical averages in quality. Two industries in the sector look more attractive than others: Consumer Finance and Real Estate Management & Development. For both of them, 2 valuation factors out of 3 and the quality factor are better than their respective averages. Commercial Banks, Diversified Financial Services, Insurance and REITs are overpriced for the 3 valuation ratios. Commercial Banks look the weakest industry of this study, with all metrics in negative territory. 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 Financials 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.

Intel Taps FreedomPop, Verizon In Wireless Push

Chipmaker Intel’s (INTC) wireless push is growing, with projects that include a Wi-Fi-first smartphone and 5G technologies for the Internet of Things, serving notice to Qualcomm (QCOM) and other rivals. Along the way, Intel is making allies out of Verizon Communications (VZ) and other industry players. Intel Capital, the chipmaker’s venture capital arm, on Tuesday disclosed an investment in FreedomPop, a Los Angeles-based provider of low-cost