U.S. equities posted a second month of mixed results in April with the largest capitalization stocks, on average, continuing higher while the mid and small cap sectors of the market had average declines. Economic headlines for the month were mostly negative. Non-farm payrolls came in below estimates for March. The unemployment rate was 3.5%. Indexes measuring non-manufacturing and services segments of the economy declined. Factory orders, construction spending and vehicle sales were also all lower. Retail sales were higher for the month of March. Inflation levels declined, with the CPI rate at 5.0%. This was lower than the previous month and slightly below expectations. Housing starts and existing home sales declined while new home sales increased. Similarly to the previous month, investors favored higher quality large cap stocks. The top performing stock selection factors were quality rating, market capitalization, and long-term dividend growth. Momentum stocks were less favored as price momentum, earnings trend, sales momentum, earnings surprise, and earnings momentum were near the bottom of the factor performance list. Roughly a quarter of the industry groups we cover posted positive average price gains during April. Some of the best performing groups were related to construction materials including forest products, cement and building products. Integrated international oil and oil producer groups were also notably good performers for the month. Semiconductors and auto & truck manufacturing were at the bottom of the performance list.
Value of the Market
Ford’s price to value ratio (PVA) is computed by dividing the price of a company’s stock by the value derived from a proprietary intrinsic value model. A PVA greater than 1.00 indicates that a company is overpriced while a PVA less than 1.00 implies that a stock is trading below the level justified by its earnings, quality rating, dividends, projected growth rate, and prevailing interest rates. While looking at the PVA for an individual company can give a good indication of its value, the average PVA for the market as a whole can provide insight into current valuation levels.
Source: Ford Equity Research