We’ve spent a great deal of time recently looking at emerging sector leaders and new sector laggards. Though it’s an important day-by-day analysis, it’s not the only one. Just as telling - but longer-term in nature - are the underlying valuations for those sectors….. those numbers tell us what ’should be’ happening.

Since all of this data are pieces to a larger puzzle, here’s a look at the complete fundamental snapshot of the large caps for each major sector; the small and mid-cap numbers are forthcoming.

The advantage to this simple chart is its completeness. Most investors would consider P/E ratios alone, and leave it at that. By adding growth and margins to the mix, one can get a much better feel for the overall health of a particular grouping.

Take energy for instance. With a trailing P/E ratio of 13.3, most would consider the group to be overvalued by the sector’s long-term norm. The thing is, with the speed at which energy earnings are growing again (the PEG ratio is a rock-bottom 0.52), the slightly frothy price may well be worth it. Though not great, net margins for the energy group are an average 8.6%…. well enough protected barring a deep, deep dip in oil/gas prices.

Also on the higher end of the spectrum are financial stocks. At first glance the trailing P/E of 18.40 seems like a small fortune, considering the sector has been back in the black for the last six quarters…. with the last four being much stronger than the first two of those. When you look at the PEG number though, like energy, the higher price for financials is justified; wide margins are the kicker.

One of the more troubling areas are discretionary stocks, which will actually come as a surprise considering how well they’ve performed over the last eighteen months. Oddly enough, they’ve yet to be ‘worth it’, and don’t appear to be on track to be ‘worth it’ anytime soon. Oh, on a case-by-case basis there may be a diamond in the rough within the consumer discretionary sector, but they’re few and far between.Consumer staples stocks are telling the same overvalued story.

Of all the sectors on the grid though, technology and healthcare are actually the best all-around values. Their P/E ratios are near average, but both groups have been growing and should continue to grow earnings faster than their P/E readings would suggest is deserved (the PEG measure is under the 1.0 mark, which is the rule of thumb ‘norm’). The icing on the cake for both sectors is pretty wide margins, which means profits are protected even if the economy throws a few more curve bells.

The matrix holds other clues and hints, which we may explore in future comments. At the very least, however, you can use these numbers as a benchmark for any of your individual picks.

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