Savita: Stocks just got much cheaper

The equity and quant strategy team at BAML is out with their relative valuation cheat sheet looking at where the market’s correction has generated the biggest buying opportunities.

Savita Subramanian and Co. note that multiple compression has knocked the S&P 500’s forward PE ratio to a premium of just 4% above the long-term historical average, versus the 10% premium it had been trading at earlier in the summer.

But not every drop in valuation is worth getting excited about…

At the sector level, Health Care valuations collapsed the most last month as investors rotated out of crowded stocks—the sector’s relative forward P/E is now more than 10% below history after trading close to average earlier this year. Tech valuations also fell substantially; these two sectors remain the cheapest vs. history on relative forward P/E. Growth-oriented stocks overall were among the worst performers in August. Industries which saw their P/E ratios compress the most were Biotech, Health Care Technology, Life Sciences, Media, and Communications Equipment. We caution, however, that while the sell-off provides an attractive opportunity to buy some industries, others may be cheap for the wrong reasons, as prices may be falling faster that estimates are being revised down. Here our tactical industry model—which we now regularly include in this report on page 13—guards against short-term value traps.

Here’s that graphic, separating the opportunities from the traps:

Screen Shot 2015-09-16 at 7.28.00 AM

Josh here – there seem to be a lot of key sectors with fundamental outlooks falling faster than their multiples. Are banks and biotechs enough to carry the market to another year of positive returns?


S&P 500 Relative Value Cheat Sheet
Bank of America Merrill Lynch – September 16th 2015

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Top Newsstuffs (September 14-20) | The Buttonwood Tree commented on Sep 20

    […] Quant: Equity relative valuation opportunities | Bank of America Merrill Lynch (BAML) “Stocks just got much cheaper” due to multiple compression during the SPX correction: – SPX forward PE: +4% premium to LT average (down fm +10% before correction) – Favorite sectors: $IBB $KBE $KIE $IYT [BAML’s quant team has a multifactor “Industry rotation model” that ranks industries according to momentum, earnings revisions & valuation to distinguish opportunities from value traps.] #Neutral $XLV $XLF […]

  2. The Natural Penguin commented on Sep 15

    … [Trackback]

    […] There you can find 5990 additional Info on that Topic: […]

  3. commented on Sep 21

    … [Trackback]

    […] Info to that Topic: […]

  4. w88 commented on Sep 21

    … [Trackback]

    […] Information on that Topic: […]

  5. bitcoin evolution review commented on Sep 24

    … [Trackback]

    […] Find More on on that Topic: […]

  6. bitcoin evolution review commented on Oct 02

    … [Trackback]

    […] There you will find 72771 additional Information on that Topic: […]

  7. 안전공원 commented on Oct 05

    … [Trackback]

    […] Here you can find 96987 more Information to that Topic: […]

  8. Eric Arnoux commented on Oct 09

    … [Trackback]

    […] There you can find 11400 additional Information to that Topic: […]

  9. Kimber guns in stock commented on Oct 14

    … [Trackback]

    […] Info on that Topic: […]

  10. orangeville real estate agents commented on Oct 16

    … [Trackback]

    […] Read More here on that Topic: […]

  11. maha steroids commented on Nov 14

    … [Trackback]

    […] Find More here on that Topic: […]

  12. 사설토토 commented on Dec 25

    … [Trackback]

    […] Read More Info here to that Topic: […]

  13. Hier commented on Feb 02

    … [Trackback]

    […] Information to that Topic: […]