From Ford Equity Research:
Following a strong start to the month, equities moved generally higher for the rest of December and finished with a solid gain. A rebound in global equity markets, encouraging retail sales reports, an agreement in Washington which maintained tax rates at current levels for two more years, and an upwardly revised estimate of third quarter GDP growth were among the news events that were viewed positively in the markets. Meanwhile, commodity prices were on the rise. Notably gold, silver, copper, and oil were at or near multi-year high price levels. Treasury yields and mortgage rates both ticked up during the month.
For a second month, investors favored high beta, lower-quality stocks. However, issues exhibiting good value characteristics such as low P/E, price/book ratio and peg ratio were also relatively good performers in December. The breadth of the market rally was evident in that nearly all of the industry groups we cover had positive average returns during the month. Among the standouts were commodity and construction materials related groups. Food and transportation issues were among the relatively weak performers.
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.
Here is the Ford’s Price to Value ratio (PVA) for the small capitalization stocks as represented by the S&P 600 index: