U.S. equities continued to advance in July with the small and mid-cap sectors of the market, on average, outpacing the largest capitalization stocks. Economic headlines for the month were mixed. Non-farm payrolls declined in June and were lower than estimated. The unemployment rate fell slightly to 3.6%. An index measuring manufacturing activity was lower in June. However, factory orders increased. A similar measure of the services segment of the economy showed expansion. Retail sales were higher in June. Inflation rates continued to decline with the CPI rate coming in at 3.0%. The housing sector weakened with housing starts, existing home sales and new home sales all falling in the month. Investors favored value stocks in July. The top performing stock selection factors were p/e ratios, price/book value, and price/value ratio. based on normal eps, and peg ratio. Higher quality and larger capitalization stocks were less favored. In addition, price momentum performed poorly for the month. Most of the industry groups we cover posted positive average price gains in July. Notable top performing groups included soap & household products, auto & truck manufacturing, and oil well drilling. Consumer goods groups were among the poorest performers with vending & food services, cosmetic & toiletries, tobacco and soft drinks appearing near the bottom of the 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