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Wednesday
Jun202012

Technology Has Lower P/E Ratio Than Utilities

The Utilities sector has had a pretty amazing run over the past few months.  But this run has pushed its P/E ratio (trailing 12-month) up to 14.95.  For a defensive sector, 14.95 is not a very attractive valuation.  It's even less attractive when you consider that the P/E ratio for the Technology sector is currently at 14.48.

Below is a chart showing the ratio of Technology's P/E to that of the Utilities sector.  When the ratio is above 1, it means the Technology sector has a higher valuation than the Utilities sector.  While Technology has historically had a much higher P/E than Utilities, the two have traded more inline with each other recently.  

Only two other times have we seen Utilities have a higher P/E than Technology.  One period came in late 2008 during the financial crisis and the other came during last summer's version of the Euro-crisis.  Following the ratio's drop below 1 in late 2008, we saw a big reversal higher as Technology significantly outperformed Utilities for quite awhile.  Following last year's drop below 1, we saw a bounce in Technology for a few months, but the trend reversed pretty quickly.

Given their valuations, which sector would you rather own?

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