the most important one?

Let’s get real: not all stocks are created equal.

Some sectors trade at sky-high valuations, while others are priced like they’re going out of business.

Why? Because each sector has its own story, its own risks, and its own growth prospects.

The price-to-earnings (P/E) ratio is a great way to see this in action.

Take tech companies, for example.

They often trade at P/E ratios of 35 or higher, while banks might be sitting at 13 or less.

At first glance, that might seem unfair…

but there’s a reason for it.

Tech companies can scale up their business without adding much cost.

One more customer for a software company doesn’t require a new factory or more inventory.

Banks, on the other hand, need more capital for every loan they make, and they’re stuck with heavy regulation and credit risk.

Energy companies are another example.

They often trade at even lower multiples because their earnings are so cyclical.

When oil prices are high, they make a fortune.

When prices crash, they’re in trouble.

Healthcare companies, meanwhile, tend to trade at a premium because people always need medicine, no matter what’s happening in the economy.

Here’s the investment idea most people miss…

…

A bank trading at 20x earnings might be expensive, while a tech company at 20x might be a bargain.

The key is to compare each sector’s current P/E to its own historical average.

For example, if real estate is trading well below its long-term average P/E, it might be setting up for a rebound.

The same goes for construction or any other sector.

The trick is to look for sectors that are trading at a discount to their own history - not just to other sectors.

That’s where the real opportunities are hiding.

By understanding how P/E ratios work across different sectors, you can spot undervalued industries and avoid overpriced ones. It’s not rocket science - it’s just knowing where to look.

But, there is a big old toolkit that you can use too…

Most investors look at one ratio at a time. They check the P/E, maybe glance at the P/B, and call it a day. But the real magic happens when you combine ratios to tell a bigger story.

That’s how you find hidden gems - companies that are undervalued but have the potential to explode higher.

Now we are primarily MOMENTUM focused, but this combination works with our Fallen Angel Strategy which is also taught to you in the Academy.

This strategy only appears a few times per year though, but when it does… wow.

Here’s a combination I love…

low price-to-sales (P/S), high debt-to-equity, and falling interest rates.

At first glance, this might sound crazy. High debt is usually a red flag, right? Not always.

When rates are falling, high debt can actually be an advantage.

Companies can refinance their debt at lower rates, which instantly improves their cash flow and makes their balance sheets stronger.

A low P/S ratio means you’re paying less for each dollar of sales, which is a good sign that a company might be undervalued (as we explained here).

If they’re also generating solid sales and have manageable debt, they’re in a great position to benefit from falling rates.

This setup works especially well in sectors like utilities, REITs, and industrials.

Utilities and REITs have steady cash flows that can service their debt, and industrials can use lower rates to invest in growth.

When rates start to drop, these companies get a double boost: their debt burden decreases, and their valuation improves.

Here’s how you can put this into practice:

• Look for companies with a P/S ratio below 2.0. This suggests they might be undervalued.

• Check their debt-to-equity ratio - ideally between 0.5 and 1.5. This means they’re leveraged but not over their heads.

• Focus on sectors that benefit from rate cuts. Utilities, REITs, and industrials are great examples, but there are indeed others too… tech firms with promising products or services that have perhaps a longer route to profitability… think Uber!

When rates fall, these companies often get overlooked because high debt scares retail investors.

But the smart investor knows better.

They’re looking for exactly this kind of setup - remember, markets don’t care about reality, just relativity.

The bottom line: ratios don’t exist in isolation. When you combine them, you can spot opportunities that most investors never see. That’s the difference between following the crowd and actually making money.

Ready to put these insights to work? Start by checking the ratios on your favourite stocks and see what stories they tell. You might be surprised by what you find.