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Confidence levels, Sector SPDRs All of the valuation metrics we report to readers are based on what is known as consensus estimates for things like sales and earnings. Consensus numbers are simply the average of figures contributed by all analysts who follow a particular stock. But what if the consensus is wrong? (Imagine that.)
To get an idea of how certain analysts are in their projections, we examined the standard deviation in estimates for 2010-11 EPS to see how wide the range of forecasts for stocks in each of the nine Sector SPDRs. We then subtracted this number from 100% to create a "confidence level," on the basis that if there were no disagreement among analysts (i.e., all EPS estimates were the same) we would have high confidence that the valuation metrics we calculate using these forecasts were accurate.
As you might expect, there is low confidence in estimates for the unpredictable Energy (XLE) and Financial (XLF) sectors, and high confidence in estimates for Health Care (XLV) and Consumer Staples (XLP). However, there is surprisingly high levels of confidence for the Basic Materials (XLB) and Industrials (XLI) sectors. The latter is showing the strongest estimate revisions among all Sector SPDRs, and is the subject of this week's Fund Focus.
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Chart: Confidence levels, Sector SPDRs
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