The chart below is an updated version of one presented by Goldman Sachs chief strategist David Kostin before the pandemic that I haven’t been able to get out of my mind. U.S. sector valuations seem to have organized themselves using a largely outmoded accounting measure in the form of book value.
It is an issue here that few analysts or investors use book value any more. . Tangible asset-heavy market sectors are all grouped in the chart’s bottom left – low P/BV and low ROE territory. This includes utilities,, unsurprisingly, and also Amazon.com-dominated consumer discretionary. The communications services sector, in the lower third of the trend line, is an interesting case. It includes the low-asset, high-profitability Alphabet Inc. and Meta Platforms Inc. but profitability is dragged down by asset-heavy AT&T Inc. and Verizon Communications Inc.
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