- We have not found that Momentum has been at the expense of value as we measure it.Our Undervalued Screens outperformed the S&P 500 by 17.3% last year while the Overvalued underperformed by 14.9%. (Our valuation methodology relates the history of relative valuation to the estimated return from growth and yield – see https://wp.me/p81Esm-9u).
Looking ahead, over 50% of the current Undervalued screen are in the Technology (35%) and Industrial Sectors (26%). The screens average return from growth and yield is estimated to be 15.3% and the average p/e ratio is modest at 16.2x,
2017 was an unusually good year for our monthly screens for Undervalued and Overvalued stocks. Our Undervalued Screens outperformed the S&P 500 by 13.6% while the Overvalued underperformed by 17.6% relative*.
The resulting spread of 31.1% between the two Screens compares to a spread of +7.9% per annum since inception in 2004. Putting in another way, 2017 was 4 times better than normal.
An analysis of the Sector drivers for the performance of Undervalued and Overvalued is summarized in the following tables which show the sum of the Sectors’s equities’ Relative Strength throughout the year:
The sum of Relative Strength by Sector indicates which Sectors contributed most to the performance. In both screens one Sector accounted for the majority of the net performance.
In the Undervalued Screens, it was Technology which contributed 61% of the net performance, followed by Industrial (25%), Consumer Cyclical (12%) and Basic Material (7%).
Accounting for the Overvalued’s underperformance, Energy was the major contributor (62%) followed by Telecommunications (11%), Financial (10%) and Consumer Cyclical (9%).
Looking ahead, the following are summaries of our current screens by Sector. VR is the average Valuation Return or Risk, and E/M is the Estimate divided by the normalized earnings (MPEPS).
For the individual company screens please contact firstname.lastname@example.org
© 2018 Robert L. Colby
* The Screened companies are from our universe of over 400 equities. They are selected on the basis being in two of the best, and worst, quartiles including Valuation Return/Risk (VR). The Undervalued had an average of 22 equities while the Overvalued averaged 28.