The "Valuation Problem" - Additional/Current Data

Now that we've examined the stocks in the Google Tech index, let's take a look at the remaining sectors.  The data is current as of today; 12/28/14 and represents Sector Data reported by Google Finance.  There are 4,487 Stock Symbols represented in nine Sectors.  5.5 % of the companies have "No Earnings/Quote Data".  35.4% of the companies have "Losses" (i.e. No/Negative P/E).  8.3% of the companies have P/E's over 50 (i.e. Market Cap priced above 50 years of current earnings.)  Here's the summary data:


                                                                                     Total
Sector                        # Cos No data Losses P/E > 50     Dogs % Dogs
Energy                           490          37      148           43       228    46.5%
Utilities                          158          35        18             9         62    39.2%
Industrials                      737          38      157           53       248    33.6%
Healthcare                      832          15      531           61       607    73.0%
Basic Materials              338          27      117           18       162     47.9%
Telecom                         110            8        29             7         44     40.0%
Cyclical Cons Goods    746          41      185           67       293     39.3%
Non-Cyc. Cons Goods   271          16       59           27       102     37.6%
Technology                    805          29      344           89       462     57.4%

Total                             4,487       246   1,588         374      2,208     49.2%
% of Total                                5.5%      35.4%       8.3% 49.2%

The "No Data" is interesting in that it represents Stocks/Symbols that, for whatever reason, have stopped reporting financial information, have been de-listed, gone "dark" or perhaps the information is not available or decipherable by Google Finance.  URL below:  Individual symbols are listed in detail by sector.

https://www.google.com/finance?ei=J7SgVOHaAcSTsQeuwYDwBg

Roughly half of the stocks in the described sectors followed by Google Finance have insufficient or predictable earnings for them to be classified as an investment under Buffett's definition of Intrinsic Value.  For the sake of space, I've adopted Gordon Gekko's term for these securities....we'll refer to them as "Dogs"....either with or without fleas....reader's choice

I was really surprised by a couple of things:

1.) Healthcare sector earnings are concentrated in a relatively small number of businesses.  (Only 27% of these businesses provide earnings available to common shareholders).

2.) The inability to create earnings is relatively consistent across sectors.  

3.) The Financial Sector is not easily analyzed and therefore not included in this analysis.  There are 2,845 Stocks/Securities listed in this Sector, of which  1,286 (45%) show some level of earnings.  However, the remainder are primarily ETF's, ADR's, Mutual Funds, Holding/Investment Companies, etc where the earnings are not disclosed/listed. Therefore, since the earnings of these businesses are not easily determined, and theoretically, these businesses build value by investing and providing capital for the other sectors, they are omitted.  

As I had described in my prior "Valuation Problem" post, the data above again bolsters the thinking that publicly held businesses are no longer managed/operated to provide earnings available to Common Shareholders.  I don;t have any historical data on this, I'm sure someone does (Professor Shiller? Care to chime in?).  It would be interesting to know how these ratios might look when compared to other points in history, for instance, 1929,1987, 1998, 2008, et al.  But my gut reaction to these numbers (49.2% of the companies sampled have no earnings - aka "Dogs") is that there is a severe disconnect between the actual and perceived potential of these businesses.  As history has consistently and painfully shown, this never ends well.