Economist Writing Every Day

Getting long-run historical PE ratios of US stocks by industry seems like the kind of thing that should be easy, but is not. At least, I searched for an hour on Google, ChatGPT, and Bing AI to no avail.

I eventually got monthly median PEs for the Fama French 49 industries back to 1970 from a proprietary database. I share two key stats here: the average of median monthly industry PE 1970-2022, and the most recent data point from late 2022.

Industry	Long Run Mean	End 2022
AERO	12.14	19.49
AGRIC	10.75	9.64
AUTOS	9.65	17.52
BANKS	10.38	10.46
BEER	15.23	35.70
BLDMT	12.00	15.41
BOOKS	12.95	17.60
BOXES	12.18	10.69
BUSSV	12.07	13.03
CHEMS	12.40	19.26
CHIPS	10.48	17.47
CLTHS	11.45	10.94
CNSTR	8.98	4.58
COAL	8.04	2.92
DRUGS	1.14	8.01
ELCEQ	10.78	17.85
FABPR	10.28	19.40
FIN	11.16	12.97
FOOD	14.30	25.03
FUN	9.10	21.06
GOLD	3.18	-5.95
GUNS	11.50	5.05
HARDW	7.96	19.16
HLTH	11.91	6.09
HSHLD	12.60	20.15
INSUR	10.95	16.33
LABEQ	13.46	25.18
MACH	12.51	20.27
MEALS	13.83	19.19
MEDEQ	6.81	27.64
MINES	8.06	16.27
OIL	6.96	9.00
OTHER	12.20	27.68
PAPER	12.50	16.69
PERSV	12.86	-0.65
RLEST	8.13	-0.30
RTAIL	12.26	8.58
RUBBR	12.11	12.81
SHIPS	9.79	17.42
SMOKE	11.74	17.79
SODA	12.38	32.09
SOFTW	8.21	-2.85
STEEL	8.18	4.30
TELCM	6.75	9.58
TOYS	9.18	-1.32
TRANS	11.25	13.11
TXTLS	9.43	-49.00
UTIL	12.34	17.41
WHLSL	11.08	13.13
Mean Industry Median	10.52	12.73

One obvious idea for what to do with this is to invest in industries that are well below their historical price, and avoid industries that are above it (not investment advice). Looking just at current PEs is ok, but a stock with a PE of 8 isn’t necessarily a good value if its in an industry that typically has PEs of 6.

By this metric, what looks overvalued? Money-losing industries (negative current earnings): Gold, Personal Services, Real Estate, Software, Toys, and Textiles. Making money but valuations 19+ above historical average: Medical Equipment, Beer, Soda. Most undervalued relative to history: Guns, Health, Coal, Construction, Steel, Retail (all 3+ below the historical average).

Of course, I don’t recommend blindly investing in these “undervalued” industries- not just for legal reasons, but because sometimes the market prices them low for a reason- that earnings are expected to fall. The industry may be in secular decline due to new types of competition (coal, steel, retail). Or investors may expect it to get hit with a big cyclical decline in an upcoming recession or rotation from the Covid goods/manufacturing economy back to services (guns, construction, steel, retail). Health services (as opposed to drugs and medical equipment) stands out here as the sector where I don’t see what is driving it to trade at barely half of its usual PE.

I’d still like to get data on long run market-cap weighted mean PE by industry, as opposed to the medians I show here. The best public page I found is Aswath Damodaran’s data page, which has a wide variety of statistics back to about 1999. Some of the current PEs he calculates are quite different from those in my source, another reason to tread carefully here. I’m not sure how much of this is mean vs median and how much is driven by different classification of which stocks fit in which industry category.

This gets at a big question for anyone trying to actually trade on this- do you buy single stocks, or industry ETFs? Industry ETFs make sense in principle (since we’re talking about industry level PEs overall) and also add built-in diversification. But the PE for the ETF’s basket of stocks likely differs from that of the industry as a whole. It would make more sense to compare the ETF’s current PE to its own historical PE, but most industry ETFs have very short track records (nothing close to the 53 years I show here). PE is also far from the only valuation metric worth considering.

All this gets complex fast but I hope the historical PE ratio by industry makes for a helpful start.