Tag Archives: fred-piard

Acceleration In The Underperformance Of Dividend And Value Stocks

The top 20% of SPY components in Dividend and Value have lagged the benchmark for 18 months. The last few weeks have been especially harmful for them. Momentum stocks have widely outperformed. This article compares the trends of four investing styles: Value, dividend, quality and momentum. It doesn’t suggest that investors should use these simplistic models, but it shows how stocks may be influenced by cycles, not only in asset classes and sectors but also in dominant investing styles. Large groups of S&P 500 stocks selected on value, dividend and quality factors have been lagging SPY since the third quarter of 2014. This phenomenon is not limited to small groups. It can be observed in the 100 best stocks of the index in each category. These categories are defined by taking the top 20% of the S&P 500 ranked on a unique factor. The top 20% of value stocks is defined as the 100 S&P 500 stocks with the lowest price/earnings ratio (P/E). The top 20% of dividend stocks is defined as the 100 S&P 500 stocks with the highest yield. The top 20% of quality stocks is defined as the 100 S&P 500 stocks with the highest return on equity (ROE). The top 20% of momentum stocks is defined as the 100 S&P 500 stocks with the highest price increase in one year. Variations in the relative performance of such large groups of stocks on long periods are the expression of behavioral changes in the market. My aim here is to observe and quantify these changes, not to explain them. The next charts show equity curves and statistics of the four “top 20%” groups for one month. The groups are updated and equal-weighted on market opening of the first trading day every week. Dividends are reinvested. Top 20% Value: (click to enlarge) Top 20% Dividend: (click to enlarge) Top 20% Quality: (click to enlarge) Top 20% Momentum (click to enlarge) The next table gives the annualized excess return over SPY of the top 20% group for each category since 1/1/2000, then on the last 12, 6, 3 and 1 months. Annualized excess return of the top 20% stocks in… Since 2000 Last 12 months Last 6 months Last 3 months Last month Value 6.60% -7.45% -16.30% -15.30% -27.76% Dividend 4.61% -7.31% -8.93% -9.55% -32.9% Quality 3.14% -4.29% -6.31% -12.94% -5.82% Momentum 1.12% 2.82% 5.24% -7.06% 8.49% Value stocks have outperformed for 16 years but they have lagged the benchmark since June 2014. The meltdown in energy companies is an incomplete explanation: It’s accountable for less than half of the negative excess return of value stocks. The relative loss of value stocks has accelerated in the last month. Dividend stocks also have lagged for at least one year. Their underperformance has accelerated considerably in the last month. It seems that expectations of a rate hike this week have made some dividend investors more nervous. Momentum stocks have outperformed their own historical excess return for at least one year. They started to lag in the last few months, but their excess return surged again in the last weeks. The transfer of excess return from value and dividend to momentum started more than one year ago and seems to continue. I have written in a previous article that such a pattern is not a reliable clue of a market top . Value and dividend offer a statistical bias on the long term, but in the short term investors following strategies based on these investing styles may experience more frustration before getting back their edge. Indeed, momentum stocks traditionally benefit from “window dressing” at the end of the year: some fund managers buy them to make their portfolios look better in annual reports. 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. Data: portfolio123

Valuation Dashboard: Consumer Staples – Update

Summary 4 key factors are reported across industries in the Consumer Staples sector. They give a valuation status of industries relative to their history. They give a reference for picking stocks in each industry. This is part of a monthly series of articles giving a valuation dashboard in sectors and industries. The idea is to follow up a certain number of fundamental factors for every sector, to compare them to historical averages. This article covers Consumer Staples. The choice of the fundamental ratios used in this study 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. You can refine your research reading articles by industry experts here . A link to a list of stocks to consider is provided in the conclusion. 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 = (Avg P/E – P/E)/Avg P/E . It can be interpreted as a percentage in under-pricing relative to a historical baseline: the higher, the better. It points to over-pricing when negative. ROE is already a percentage. A relative variation makes little sense. That’s why we take the simple difference: D-ROE = ROE – Avg ROE . The industry factors are proprietary data from the platform. The calculation aims at eliminating extreme values and limiting the influence of the largest companies. 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 12/2/2015 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 Food&Staples Retail 22.22 19.16 -15.97% 0.44 0.34 -29.41% 44.43 33.01 -34.60% 12.01 9.78 2.23 Beverages 34.93 22.05 -58.41% 2.02 1.34 -50.75% 46.09 29.6 -55.71% 5.2 7.06 -1.86 Food 24.01 20.25 -18.57% 1.36 0.91 -49.45% 29.97 27.51 -8.94% 7.89 8.43 -0.54 Tobacco* 24.24 14.83 -63.45% 3.53 2.13 -65.73% N/A N/A N/A N/A N/A N/A Household Products 27.22 21.4 -27.20% 1.97 1.3 -51.54% 39.8 30.55 -30.28% 15.25 17.18 -1.93 Personal Products 19.31 18.05 -6.98% 1.69 1.51 -11.92% 15.74 20.7 23.96% -2.58 2.1 -4.68 * P/FCF and ROE are currently outliers in Tobacco 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 ( XLP ) with SPY (chart from freestockcharts.com). (click to enlarge) Conclusion The Consumer Staples sector has underperformed the broad market by about 2% in the last 3 months. XLP is about 3% below its all-time high of October. The 5 most prominent S&P 500 consumer staples stocks in the recent market recovery are Costco Wholesale Corp (NASDAQ: COST ), Dr Pepper Snapple Group (NYSE: DPS ), Hormel Foods Corp (NYSE: HRL ), Molson Coors Brewing (NYSE: TAP ), Tyson Foods Inc. (NYSE: TSN ). DPS, HRL, TSN have hit an all-time high this week. TAP and COST did it last month. No industry group looks attractive when considering historical valuations and quality factors. The Personal Products industry has significantly improved its valuation factors since last month, but the quality factor is stable and bad. 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 Staples 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.

Valuation Dashboard: Consumer Discretionary Sector

Summary 4 key fundamental factors are reported across industries in the Consumer Discretionary sector. They give valuation status of an industry relative to its historical average. They give a reference for picking stocks in each industry. This is part of a monthly series of articles giving a valuation dashboard in sectors and industries. The idea is to follow up a certain number of fundamental factors for every sector, to compare them to historical averages. This article covers Consumer Discretionary. The choice of the fundamental ratios used in this study 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. You can refine your research reading articles by industry experts here . A link to a list of stocks to consider is provided in the conclusion. 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 11/26/2015 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 15.13 15.33 1.30% 0.83 0.62 -33.87% 33.88 21.23 -59.59% 10.79 3.9 6.89 Automobiles 17.6 17.67 0.40% 1.19 1.06 -12.26% 16.17 21.97 26.40% 10.79 0.21 10.58 Household Durables 17.52 15.46 -13.32% 0.85 0.59 -44.07% 30.1 16.33 -84.32% 9.74 5.3 4.44 Leisure Equip.&Products 22.9 17.82 -28.51% 1.19 0.84 -41.67% 30.76 22.05 -39.50% 9.14 2.63 6.51 Textile,Apparel,Luxury 17.93 16.34 -9.73% 1.02 0.71 -43.66% 27.03 17.23 -56.88% 11.81 7 4.81 Hotels, Restaurants, Leisure 27.67 21.67 -27.69% 1.38 1.04 -32.69% 26.98 24.18 -11.58% 9.24 4.51 4.73 Div. Consumer Services* 27.49 21.49 -27.92% 1.37 1.4 2.14% 17.28 18.64 7.30% 0.36 11.35 -10.99 Media 21.27 23.31 8.75% 1.61 1.55 -3.87% 24.79 19.9 -24.57% 3.43 -3.45 6.88 Distributors 20.07 14.32 -40.15% 1.05 0.48 -118.75% 37.45 16.28 -130.04% 10.21 3.18 7.03 Internet&Catalog Retail 39.1 37.37 -4.63% 1.38 1.8 23.33% 38.36 32.11 -19.46% 5.83 -14.7 20.53 Multiline Retail 20.32 19.41 -4.69% 0.5 0.48 -4.17% 25.87 26.81 3.51% 7.04 10.44 -3.4 Specialty Retail 18.69 17.95 -4.12% 0.58 0.56 -3.57% 24.34 21.87 -11.29% 11.69 9.85 1.84 *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 (ROE) Relative Momentum The next chart compares the price action of the SPDR Select Sector ETF ( XLY ) with SPY (chart from freestockcharts.com). (click to enlarge) Conclusion The Consumer Discretionary sector has outperformed the broad market by more than 4% in the last 3 months. It hit a new all-time high this week. The 5 most prominent S&P 500 consumer discretionary stocks in the recent rally are Amazon (NASDAQ: AMZN ), Cablevision Systems (NYSE: CVC ), General Motors (NYSE: GM ), Nike (NYSE: NKE ), Viacom (NASDAQ: VIAB ). AMZN and NKE have hit an all-time high this week. Car and motorcycle manufacturers (Automobiles) look the most attractive industry in the sector: it is fairly priced in P/E, under-priced in P/FCF, and ROE is above the historical average. The industries with an improvement in valuation factors since last month are Auto Components, Household Durables, Leisure equipment and products, Hotels and Restaurants, Specialty Retail. 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.