Each month, we take a close look at an aspect of sector investing. This month, we are examining growth and valuation. Investors hunting for stocks that reasonably balance long-term growth prospects and current value characteristics might want to look at companies in the Financial, Communication Services, and Healthcare sectors. These are among the industry groups that are currently selling for PEGY ratios -- (price/earnings)/(growth+yield) -- at or below the S&P 500's ratio of 2.4. To generate the PEGY ratios, we use the P/E ratio for each sector based on forward earnings for the numerator. For the denominator, we average the growth rates for the past five years along with two years of forward estimates, this in order to achieve a less-volatile trend of earnings growth. Then we add the current yield to approximate total return. As an example, the current S&P 500 P/E ratio is 21, the current yield is 1.6%, and the forecast five-year growth rate is 7.1%. The formula is 20/(1.6+7.1) = 2.4. Sectors with favorable growth and valuation characteristics, in addition to the three listed above, include Energy, Real Estate, and Utilities. Premium-valued sectors with low growth rates include Consumer Staples and Materials. Based on our analysis of growth rates and valuations, along with other factors, we have established our current over-weight sectors as Technology, Financial, Healthcare, and Communication Services. Our under-weight sectors are Energy, Materials and Consumer Staples. Our Market-Weight sectors are Consumer Discretionary, Utilities, Real Estate, and Industrial.

Based in Salt Lake City, Zions provides a range of retail and commercial banking, residential mortgage lending, and asset management services. The company has more than 10,000 employees in Utah, Texas, New Mexico, Arizona, Colorado, South Dakota, Idaho, Washington, Oregon, Nevada and California.

Monday Tee Up: A Breather

The major indices were smacked again on Tuesday, as the S&P 500 (SPX), Nasdaq, and Nasdaq 100 (QQQ) all fell between 1.5% and 1.9%. The three indices all failed near or at their 50-day averages on Monday, reflecting a simple rule in technical analysis that states prior support, when busted, becomes resistance (and vice versa). The SPX filled the gap created on April 26 and bounced, but ended at its lows. The recent closing lows of the SPX (4,967), Nasdaq (15,282), and QQQ (415) remain key near-term chart support and would need to be taken out if we are to see another leg lower.