XLI: Industrials Sector ETF Approaching February 2020 Support (NYSEARCA:XLI)

The select industrial sector SPDR ETF (NYSEARCA: XLI) has dropped 14%, including dividends, so far this year. It’s actually a little better than the SPDR S&P 500 (SPY) ETF.

ETF YTD Heat Performance Map: XLI Down, but Exceeding SPY in 2022

However, it is difficult to group all the “industrial” actions. The sector is among the most diversified of the 11 S&P 500 groupings. Note that within the space you will find machinery companies, aerospace and defense companies, integrated shipping stocks, personnel agencies, agricultural and agricultural driven companies. for resources and transportation. This is happening a lot.

And performance differences are evident in 2022. The industry has hot industries like aerospace and defense, as well as food and agricultural companies. Weak industries are some of the most cyclical areas, such as large blue chip industrial conglomerates and many technical business services stocks.

Industrial sector companies: P / E forward (left), YTD yields (right)

The composition of the sector is quite diverse. Raytheon (RTN) is the largest stake, but there are many companies with similar weights to XLI, according to SSGA.

XLI Holdings

Overall, XLI’s alpha negative this year is nothing new. The sector has been on a downward trend since the beginning of 2018. A fund may have been set during the second quarter of 2020, but the current consolidation, as seen in the relative weekly chart below, seems to me to be more a continuation pattern. I am inclined to lean lower compared to the broad market.

Relative Chart XLI Vs. SPY from (5 years, weekly)

Going deeper into some industry metrics, you will find that XLI is 7.8% SPY and has a value slope, according to JP Morgan Asset Management. However, it is a material part of the Russell 2000 Small Capital Index. It is second only to the energy sector (XLE) in terms of earnings growth expectations over the next 12 months. So the advanced P / E is 17.4x, but it’s still a bit more expensive than the industry’s 20-year average of 16.2x. Total shareholder performance (repurchase yield plus dividend yield) is close to the S&P 500 standard at 3.8%.

Yields, valuation and performance of the S&P 500 sector

The anticipated P / E ratio of industrialists has fallen sharply since the peak of a few months ago, returning valuations to their long-term average. The PEG ratio seems pretty cheap, though.

Industrial sector valuation history: favorable PEG ratio

Given the group’s assessment, the outlook for this year’s EPA growth rate has been stable since early 2021, currently at an extraordinarily strong + 36.4%, according to data collected by Ed Yardeni . The forecast for the growth rate of profits for next year has been reduced after growing in late 2021 and early this year.

History of the annual growth forecast of the EPS of the industrial sector

The technical outlet

XLI has key support to the pre-pandemic peak and to the successful point of disapproval in early 2021 at $ 85. It needs to be maintained, but there is a gap in the low $ 80 that could also be labeled before an upside investment occurs. Looking back, there was a significant drop in momentum as stocks consolidated last year. This led to a downward trend in 2022. It’s hard to be excited about the chart right now, but it would be a buyer with a drop to $ 80 low and medium.

Weekly Chart XLI: Assistance and Gap in Play for February 2020

The bottom line

Industry is a complex sector. However, there are several industries that make a single call. However, I am a seller right now, but I would buy the drop down to an average of $ 80 according to the charts. Also, the PEG ratio seems strong here given the high growth of the projected EPS (and yes, we don’t know what the “E” will be).