The Hartford Financial Services Group, Inc. (HIG)

Daily Spotlight: Values in Financials and Information TechnologyEach month we take a close look at an aspect of sector investing. This month, we are examining growth and valuation. Investors hunting for stocks that reasonably balance long-term growth prospects and current value characteristics might want to look at companies in the Financial Services, Technology, and Industrial sectors. These are among the industry groups that are selling for (price/earnings)/(growth+yield) ratios at or below the S&P 500's ratio of 2.0. To generate the PEGY ratios, we use the P/E ratio for each sector based on forward earnings for the numerator. For the denominator, we average the growth rates for the past five years along with two years of forward estimates, in order to achieve a smoother and less-volatile trend of earnings growth. We then add the current yield, to approximate total return. As an example, the current S&P 500 P/E ratio is 17, the current yield is 1.6%, and the forecast five-year growth rate is 7.1%. The formula is 17/(1.6+7.1)=2.0. Premium-valued sectors with low growth rates include the Consumer Staples and Utilities industries. Based on our analysis of growth rates and valuations, along with other factors, we have established our current over-weight sectors as Technology, Financial, Consumer Discretionary and Communication Services. Our under-weight sectors are Energy and Consumer Staples. Our Market-Weight sectors are Healthcare, Industrial, Utilities, Real Estate, and Basic Materials.