S&P 500 Relative Value by Sector

Savita Subramanian’s latest S&P 500 Relative Value Cheat Sheet came out this week and the Equity and Quant Strategist at BofA Merrill Lynch notes the following:

All ten sectors saw their absolute forward P/Es decline last
month, while the relative forward P/E increased only for Utilities, Health Care and
Tech. Utilities is now once again the most expensive sector vs. history on relative
forward P/E (eclipsing Financials); it trades at a 3% premium to the market when it
has historically traded at a 14% discount. Energy and Tech remain the most
attractive, suggesting 20% and 15% upside, respectively, just to return to average.

Subramanian also points out that Healthcare is now trading at a premium to Consumer Staples for the first time since 2006. Biotechnology stocks within the Healthcare sector have had a lot to do with that. The report says that Biotech is now selling at a 60% premium to the S&P 500 on a forward PE basis – which is double the premium it has historically traded at.

In the chart below, some relative valuations by sector within the S&P 500 along with implied upside / downside on three metrics:

(Click to Embiggen)

Source:

S&P 500 Relative Value Cheat Sheet
Bank of America Merrill Lynch – February 13th, 2014