Continuing to think about Sector Rotation

by Wayne Ferbert on June 11th, 2012

If you read this blog, you know like to use a little sector rotation inside of our personal portfolios and the portfolios of our clients. We rarely invest in individual stocks – but we often think that Mr. Market creates imbalances between the different sectors of the market.

We most often examine different valuation and trend data to identify the candidates for our sectors we like. Currently, we like Financials, Technology, & Energy.

Check out this chart we regularly follow at y-Charts.com which charts the Price to Earnings Ratio and the Price to Tangible Book Value:
 

When I look at this chart, I see three distinct areas:

  1. Lower left sectors: Sectors trading at a discount
  2. Middle sectors: Sectors you need to be selective about
  3. Upper right sectors: Sectors to avoid

You can see 9 different sectors here and we have labeled three that stand out to us.

 

We continue to like Financials on valuation. We like Technology because we believe it is positioned for growth as we believe fundamentally that the world has only just started being changed by the digital capabilities of technology. Lastly, I don’t like Health Care. I think it trades at an excessive premium to earnings and tangible book value.

 

If you also use sector rotation, check out the Sectors tab at ycharts.com. They have a great tool for comparing sectors across about 50 different metrics!




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