Two weeks ago we discussed which S&P 500 sectors looked most attractive based on the embedded expectations for revenue growth each sector needed to deliver to justify their current levels. We concluded that based on embedded expectations, the Technology and Healthcare sectors looked to have the most realistic expectations “priced-in”. To take this analysis a step further, we have filtered through both sectors using AFG’s Investment Grade model to identify some attractive investment opportunities from these sectors.
AFG’s Investment Grade Model is a multi-factor, weighted model that grades companies on the basis of Valuation, Economic Margin Momentum, Earnings Quality and Management Quality. AFG’s Investment Grade™ model designates a letter grade (A through F) for each of the factors mentioned above and then applies an overall letter grade to each company based on its overall attractiveness as an investment.
Once we have screened the Technology and Healthcare sectors of the S&P500 using AFG Investment Grade criteria, we have identified 10 companies from the two sectors that contain many of the characteristics inherent in companies likely to outperform sector and industry peers. These companies are all trading well below their intrinsic value (undervalued), have competent management teams that understand how to create wealth for their shareholders and earn an overall AFG Investment Grade of A. We believe that these companies deserve an in-depth look when looking to add exposure to either the Tech or Healthcare sectors and can serve as an excellent starting list for investors looking for potential investment ideas.
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