This article series provides a monthly dashboard of industries in each sector of the GICS classification. It compares valuation and quality factors relative to their historical averages in each industry, and gives a list of 10 stocks. I update every month 8 lists like this one covering all sectors (some sectors are grouped). The 8 lists together have returned about 25% in 2016. If you want to stay informed of updates, click "Follow" at the top of this page. My Marketplace Subscribers have an early access to the stock lists before they are published in free-access articles.

Executive summary

Biotechnology looks cheap relative to its own historical averages in valuation factors. Life Sciences Tools/Services and Managed Healthcare look slightly overpriced and above the historical average in profitability (measured by ROE). Other groups are less appealing. The Pharmaceutical industry is close to the baseline in P/E and undervalued for P/FCF, but much worse regarding P/S and ROE. The worst group here and the only healthcare industry with all factors worse than their historical averages is Healthcare Equipment.

Since last month:

Some cheap stocks in their industries

The stocks listed below are in the S&P 1500 index, cheaper than their respective industry factor for Price/Earnings, Price/Sales and Price/Free Cash Flow. The companies with the highest Return on Equity are kept in the final selection.

This strategy rebalanced monthly has an annualized return about 22.34% for a 17-year backtest. The sector ETF XLV has an annualized return of only 7.73% on the same period. Past performance is not a guarantee of future result. This is not investment advice. Do your own research before buying.

ABBV

AbbVie Inc

BIOTECH

ABC

AmerisourceBergen Corp

HCAREPROVID

AMGN

Amgen Inc

BIOTECH

BIIB

Biogen Inc

BIOTECH

CAH

Cardinal Health Inc

HCAREPROVID

GILD

Gilead Sciences Inc

BIOTECH

MCK

McKesson Corp

HCAREPROVID

PRXL

PAREXEL International Corp

MEDEQUIP

UTHR

United Therapeutics Corp

BIOTECH

Detail of Valuation and Quality indicators in Healthcare on 2/8/2017

I take 4 aggregate industry factors provided by portfolio123: Price/Earnings (P/E), Price to sales (P/S), Price to free cash flow (P/FCF), Return on Equity (ROE). My choice has been justified here and here. Their calculation aims at limiting the influence of outliers and large caps. They are reference values for stock picking, not for capital-weighted indices.

For each factor I calculate the difference with its own historical average: to the average for valuation ratios, from the average for ROE, so that the higher is always the better. The difference is measured in percentage for valuation ratios, not for ROE (already in percentage).

The next table reports the 4 industry factors. There are 3 columns for each factor: the current value, the average ("Avg") between January 1999 and October 2015 taken as an arbitrary reference of fair valuation, and the difference explained above ("D-xxx").

P/E

Avg

D- P/E

P/S

Avg

D- P/S

P/FCF

Avg

D- P/FCF

ROE

Avg

D-ROE

Health Care Equipment

43.01

27.18

-58.24%

4.01

3.18

-26.10%

38.66

30.51

-26.71%

-33.87

-12.14

-21.73

Managed Health Care

22.95

20.88

-9.91%

1.04

0.85

-22.35%

18.26

17.75

-2.87%

8.28

5.78

2.5

Health Care Technology*

83.28

56.13

-48.37%

3.06

3.39

9.73%

35.12

35.77

1.82%

-14.56

-6.2

-8.36

Biotechnology

27.8

39.78

30.12%

31.94

29.01

-10.10%

36.09

43.74

17.49%

-68.17

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Valuation Dashboard: Healthcare - Update - Seeking Alpha