The Communication Equipment industry is fairly valued and above its historical average in profitability measured by median ROE. Semiconductors are close to fair price regarding Price/Earnings and Price/Free Cash Flow ratios, but the Price/Sales ratio is not so good. They are also above their profitability baseline. Hardware has mixed ratios: underpriced in P/E, overpriced in P/S and P/FCF. Electronic Equipment and IT Services look overvalued by 20% to 30% combining several valuation factors. Internet, Software and Telecommunications are overpriced by more than 30%. All IT and Telecom industries are above their historical baseline in profitability.
Since last month:
- P/E has significantly improved in all IT/Telecom industries except Semiconductors (stable) and Wireless Telecom Services (moderate deterioration).
- P/S has moderately improved in all industries.
- P/FCF has improved in Internet, Telecom and Communication Equipment, is stable in Electronic Equipment and IT Services, and deteriorated in Hardware, Software and Semiconductors.
- ROE has moderately improved in Internet, Hardware and Software, and is stable in other industries.
- The Technology Select Sector SPDR ETF (XLK) has outperformed the SPDR S&P 500 ETF (SPY) by about 4.5%.
- On this period, the 5 best performing S&P 500 Tech or Telecom stocks are Adobe Systems Inc. (ADBE), ANSYS Inc. (ANSS), Intel Corp. (INTC), Nvidia Corp. (NVDA), and Qualcomm Inc. (QCOM).
Some cheap stocks in their industries
The stocks listed below are in the S&P 1500 index and cheaper than their respective industry factor for Price/Earnings, Price/Sales and Price/Free Cash Flow. The 10 companies with the highest Return on Equity are kept in the final selection.