With markets still grappling with the effects of the coronavirus (COVID-19) crisis, it seems like the global financial crisis was ages ago. Then again, the latest crisis bears reminders of the prior one, including depressed energy prices, stress in the corporate bond market and duress in the mortgage-backed securities arena.
One might think that given the length of the just completed bull market coupled with the fact that this bear market arrived in rapid fashion that no exchange traded funds are trading at valuation discounts today compared to where they were in March 2009.
In reality, as the ETF Research Center (ETFRC) points out, there are several well-known ETFs trading at steep price-to-sales discounts today relative to levels seen on March 31, 2009.
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Here are a few examples of that phenomenon.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
The energy is loaded with stocks and ETFs trading at depressed multiples and the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) is one of the prime examples of that trend.
“But demand for oil will eventually recover and with it so will the fortunes of the survivors in the E&P business,” said ETFRC. “At just 0.23x forecast sales--though again that multiple could rise as forecasts are cut further--investors seem overly pessimistic in our view, compared to how they valued these same companies back in March 2009, at 0.86x sales, not to mention an average P/S multiple of 1.2x since mid-2006!”
XOP's price-to-sales discount today compared to March 31, 2009 is a staggering 73%.
VanEck Vectors Gold Miners ETF (GDX)
The VanEck Vectors Gold Miners ETF (NYSE: GDX), the largest fund in this particular category, may be one of the more attractive options among the deeply discounted funds identified by ETFRC.
Gold miners are in better financial shape today than they were five or six years ago, many GDX components are prioritizing cost synergies and are firming up balance sheets. Although this is historically volatile segment of the ETF market, it's hard to ignore that there's a case for gold with central banks debasing currencies – a case that is likely to grow if inflation arrives.
GDX's price-to-sales discounted is a whopping 66% to March 31, 2009 levels.
Vanguard FTSE Emerging Markets ETF (VWO)
A long-running battle cry of emerging markets bulls is that these stocks are cheap. Discerning whether this asset class is full of value or value traps is a different matter.
There are valid reasons why emerging markets equities are saddled with depressed multiples relative to broader U.S. equity benchmarks, not the least of which is slack performance. For the six years ending 2019, the Vanguard FTSE Emerging Markets ETF (NYSE: VWO) outperformed the S&P 500 on just twice on an annual basis.
In three of those six years, VWO generated negative returns so perhaps it's not surprising that the largest emerging markets ETF trades at a 42% discount to its March 31, 2009 price-to-sales ratio, according to ETFRC.
Disclosure: The author owns shares of VWO.
© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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