Using P/Book as a compass

Book values move slowly. P/Book is a robust indicator of valuation opportunities. Below we post the neat chart provided by Sarim based on… AlphaValue data. 

The reading is straight forward. The black dot provides the quasi-spot picture (12-03 prices). The yellow bar is a 2006-2024 average computed on the AlphaValue coverage and the grey bar is the average plus 1 standard deviation. This helps gauge the relative position of the black dot.

Unsurprisingly Semiconductors, Capital Goods, Aerospace, Building Materials and to a lesser extent Infrastructure are ultra expensive. Food Retail and Utilities stand at acceptable valuations

Sectors gauged through P/Book metrics

Oils, the star sector of the last 3 weeks, are certainly not overvalued for now. Autos are ultra-cheap, but we would not touch them with a barge pole.

Central for the balance of European indices, is the relative pricing of Banks: so far so good.

Above comments can be matched to the chart below, ranking sectors at spot prices (21-03) using a rolling 18-month forward P/Book. There is no divergence from the previous chart, but it helps reset sectors against each other and vs. the c.2x average for European equities

P/Book (18-month rolling average)

What now?

Keep a positive eye on Oils as the Middle East mess creates lasting scarcity, on Software in a true contrarian move, on Support Services, and on Food Retail and Health stocks. Consumer Durables and Pharmas look like natural ports of call too.