Gavekal Capital: US Consumer Discretionary Stocks Looking Rich And Then Some

Tuesday, March 18, 2014

US Consumer Discretionary Stocks Looking Rich And Then Some


There are 609 companies in the MSCI North America. Of which, 104 (17.1%) are in the consumer discretionary sector. Only the financial sector (109 stocks or 17.9%) account for a larger share in the MSCI North America. Understanding the valuation characteristics of such a large proportion of the MSCI US is important for understanding the valuation situation of the market as a whole.  US consumer discretionary stocks have far outpaced the MSCI World Index over the past four years (78% outperformance) and thus, not surprisingly valuations are looking pretty stretched for this sector. 


78% of consumer discretionary stocks are trading above their 5-year P/CF average and 54% of stocks are within 20% of their 5-year high P/CF valuation while only 1% of of stocks are within  20% of their 5-year P/CF low. To put that in perspective, 67% of stocks in the entire MSCI US are trading above their 5-year P/CF average and 45% of stocks are within 20% of their 5-year high P/CF valuation and 6% are within 20% of their 5-year P/CF low.

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Only 4% of stocks are trading at a P/CF multiple of  5x or less, while over 13% of stocks are trading at P/CF multiple of 25x or more. Overall, 41% of stocks are trading at P/CF multiple of 15 or greater.

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