The Most Undervalued Sector

Warren Buffett is well known for saying: “Price is what you pay. Value is what you get.

And now that the S&P 500 has climbed more than 200% above its March 2009 lows… finding a good value is getting harder by the day.

But that doesn’t mean there aren’t “needles” of hidden value deep in the haystack…they’re just difficult to find.

The first step toward finding these attractively priced stocks is to figure out which of the nine market sectors are over- and under-valued.

There are, of course, many ways to make that determination. One quick-and-dirty “value” calculation I like is simply the percentage change in today’s price relative to the 2007/2008 peak.

Most market sectors are now trading firmly above the price at which they peaked in 2007 or early 2008. But there are a few sectors that are still trading below their pre-crisis peaks. Take a look…

may 13

As you can see, the financial sector (XLF, far left) is now trading at a price that’s 35% below its 2007 high. This sector includes banks, investment funds, and insurance companies, and as a whole, it’s significantly undervalued.

All other things equal, that makes it a better deal than, say, the consumer discretionary sector (XLY, second to right), which is now priced 87% above its 2007 peak.

When I published this week’s issue of Cycle 9 Alert… the financial sector (XLF) was ranked No. 1 on our “Leaders & Laggards Board.” Its momentum is much stronger than the broader market (i.e. the S&P 500) which means there’s a high-probability it will outperform other sectors over the next two to three months.

And since the financial sector is also attractively priced, I’ve found some great bargains!

One I recently recommended came out of Europe, which itself is still priced well below its 2007 peak.

Specifically, shares of the Vanguard FTSE Europe ETF (NYSE: VGK) are still trading 30% below its 2007 peak.

And shares of one particular European-based financial stock was recently priced at a killer deal: 65% below its pre-crisis peak.

I recommended a bullish position on this stock on March 17… and it’s already handing us a profit of 80%… in less than one month!

If nothing else, this just goes to show there are still plenty of profitable opportunities in the stock market for strategic investors, even if much of the market is overvalued.

It’s probably too late for you to get into a position in this European financial company. But I’ll be recommending more value plays, like this one, in Cycle 9 Alert over the next few weeks. You can gain access to it here.



Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.