NEW YORK (ETF Expert) -- The 30 companies that comprise the Dow Jones Industrials collectively failed to increase sales in 2013. Yet, the price of the Dow surged more than 25%. While that price appreciation for the big-time benchmark may be slowing, the Dow still managed to eclipse 17000 without generating much in the way of actual revenue growth.
Sales at S&P 500 corporations have also been unimpressive. According to Howard Silverblatt, senior index analyst at S&P Capital IQ, aggregate sales per share for S&P 500 constituents registered $2.49 billion in the first quarter of 2014. Back near the last bear market's inception in Q1 of 2008? $2.65 billion.
If Silverblatt is correct, one method of measuring revenue strength -- sales per share -- is less vibrant today than during the beginning of the Great Recession.
Of course, analysts keep drilling home the notion that the bull market rests on the trajectory of corporate earnings. The problem with relying on the profitability data alone is the data are being manipulated. Record low interest rates since the end of 2008 have fostered binge borrowing by corporations and the subsequent financing of nearly $2 trillion in stock buybacks (first-quarter 2009 to first-quarter 2014).
The effect? A misguided perception that earnings are barreling forward. In truth, earnings per share appear strong because buybacks reduce the number of shares in existence, artificially reducing the trumpeted price-to-earnings (P/E) ratio.
It is also worth noting that the current price-to-sales (P/S) ratio for the S&P 500 (1.77) is roughly 25% higher than the median P/S in the 21st century (1.42). The historical mean since the market benchmark began? Around 0.9. It follows that most folks can reasonably assume that U.S. stocks are quite expensive in the context of the revenue that corporations have been generating.
The concern led me to identify a handful of broader-based U.S. exchange-traded funds with substantially lower price-to-sales numbers than the S&P 500. The ratios in the table below come from the most recent Morningstar data feed and/or a provider's Web site:
|Bargain ETFs? These Funds Have Low P/S Ratios|
|RevenueShares Large Cap Fund (RWL)||0.68|
|First Trust Mid Cap Value AlphaDex (FNK)||0.70|
|WisdomTree Small Cap Earnings (EES)||0.82|
|First Trust Consumer Staples AlphaDex (FXG)||0.83|
|WisdomTree Large Cap Value (EZY)||0.86|