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By Philip van Doorn

Even a slow-growing sector can include rapidly growing companies that are putting up big numbers

Robinhood is expected to increase revenue at a compound annual growth rate of 15.5% from 2025 through 2027, based on consensus estimates among analysts polled by LSEG. But investors seem to have higher expectations based on the stock’s valuation and the company’s annualized revenue-growth rate of 47.4% from 2022 through 2024.

No doubt you have gotten used to the flow of warnings about how expensive the S&P 500 has become. But there are always sectors that trade at low valuations to the full U.S. large-cap benchmark index.

The cheaper sectors reflect investors’ and analysts’ expectations for slower growth than what they expect to continue to see in the information-technology sector. But even in lower-valued sectors there are companies expected to put up big numbers over the next two years.

We are going to screen the three sectors of the S&P 500 that are least expensive based on a commonly used valuation measure. First let’s look at the 11 sectors of the S&P 500 SPX. Here they are, sorted by ascending forward price/earnings ratios, with the full index at the bottom.

   Sector or index           Forward P/E  Forward P/E to 10-year average  Two-year estimated revenue CAGR through 2027  Two-year estimated EPS CAGR through 2027 
   Energy                           14.8                             64%                                          2.4%                                     17.5% 
   Financial                        16.2                            119%                                          5.8%                                     11.2% 
   Healthcare                       17.1                            105%                                          5.7%                                     11.0% 
   Materials                        19.3                            110%                                          5.0%                                     16.5% 
   Utilities                        19.8                            111%                                          5.2%                                      8.9% 
   Communication Services           21.2                            126%                                          7.5%                                     10.4% 
   Consumer Staples                 21.4                            108%                                          4.4%                                      7.5% 
   Industrials                      23.9                            126%                                          6.3%                                     16.0% 
   Consumer Discretionary           28.5                            118%                                          6.7%                                     14.4% 
   Information Technology           29.6                            134%                                         12.7%                                     19.5% 
   Real Estate                      36.4                             90%                                          6.9%                                     11.2% 
   S&P 500 Index                    22.7                            121%                                          6.5%                                     13.9% 
                                                                                                                                                    Source: LSEG 

You might need to scroll the table or flip your screen to landscape to see all of the columns in the table.

The forward price/earnings ratios are based on Wednesday’s closing prices for stocks and consensus 12-month earnings-per-share estimates for companies among analysts polled by LSEG, weighted by market capitalization. The second data column shows the current P/E valuations relative to 10-year average valuations, based on rolling stock prices and 12-month EPS estimates. So the full S&P 500 is trading at a 21% premium to its 10-year average valuation.

In fact, all sectors of the S&P 500 are trading at premium valuations to their 10-year average P/E, except for the energy and real-estate sectors, according to LSEG’s data.

Among the three least expensive sectors based on current forward P/E, the financial sector may appear pricey, since it is trading at a 19% premium to its 10-year average P/E, but it is still the second-cheapest sector based on current P/E. On this basis, the financial sector trades at 71% of the valuation of the full S&P 500. Over the long term, this level of discount for the financial sector to the full index has been typical.

The right-most columns of the table show projected compound annual growth rates (CAGR) for revenue and EPS. The three cheapest sectors by forward P/E (energy, financials and healthcare) all have projected revenue CAGR from 2025 through 2027 lower than the full S&P 500’s projected 6.5%. The energy sector’s projected EPS CAGR of 17.5% exceeds the full index’s projected EPS CAGR of 13.9%. These are both attractive figures and reflect expectations for continuing improvements in efficiency and profit margins. Oil and natural-gas producers in the energy sector have shown discipline during the years following the decline in oil prices form mid-2014 through early 2016 – a period during which U.S. producers suffered in the wake of high production that softened prices. In more recent years, the U.S. oil and gas producers have been careful not to expand production quickly and have focused on increasing dividends to shareholders and on stock buybacks. Reduced share counts resulting from the buybacks boost EPS, and the projected EPS CAGR shows analysts expect this action to continue.

The rapid growth of sales and earnings for the largest technology companies in the S&P 500 has increased the index’s weighting toward a small number of stocks. Success is rewarded in an index weighted by market capitalization, but this has also led to a high level of concentration.

The S&P 500 is now 39.9% concentrated in its largest 10 companies, according to analysts at Ned Davis Research. That is close to the peak concentration of 40.3% in September, which was the highest concentration for the S&P 500 since at least 1972.

Some investors might not realize how much of their portfolios are focused on Big Tech. The $677 billion SPDR S&P 500 ETF Trust SPY tracks the S&P 500 by holding all of its stocks. The ETF is 29.5% concentrated in five companies: Nvidia Corp. (NVDA), Microsoft Corp. (MSFT), Apple Inc. (AAPL), Alphabet Inc. (GOOGL) (GOOG) and Amazon.com Inc. (AMZN).

Screening the cheapest sectors of the S&P 500 for growth stocks

There are index funds tracking each of the sectors of the S&P 500. Among exchange-traded funds, the three sectors we are screening are tracked by the Energy Select SPDR ETF XLE, the Financial Select SPDR ETF XLF and the Health Care Select SPDR ETF XLV. But you might also want to drill down into individual stocks.

To screen these sectors, we combined the S&P 500 energy, financial and healthcare sectors for a list of 157 stocks. Then we cut the list to 151 companies covered by at least five analysts polled by LSEG, and for which consensus revenue and positive EPS estimates were available from the calendar year 2025 through calendar 2027. We used calendar-year estimates as adjusted by LSEG if necessary for companies whose fiscal years don’t match the calendar.

Among the 151 remaining companies in the energy, financial and healthcare sectors, these 10 have the highest projected revenue CAGR from 2025 through 2027 based on consensus estimates among analysts polled by LSEG:

   Company                         Ticker   Two-year estimated revenue CAGR through 2027  Two-year estimated EPS CAGR through 2027  Forward P/E 
   Blackstone Inc.                BX                                               26.1%                                     27.2%         25.8 
   KKR & Co.                      KKR                                              24.4%                                     26.1%         19.0 
   Insulet Corp.                  PODD                                             17.7%                                     24.7%         57.7 
   Apollo Global Management Inc.  APO                                              17.2%                                     19.1%         14.2 
   Eli Lilly & Co.                LLY                                              17.1%                                     27.6%         27.6 
   Fifth Third Bancorp            FITB                                             16.9%                                     16.2%         11.4 
   Brown & Brown Inc.             BRO                                              15.8%                                     11.5%         18.9 
   Robinhood Markets Inc.         HOOD                                             15.5%                                     17.6%         61.5 
   Arthur J. Gallagher & Co.      AJG                                              15.4%                                     17.4%         20.9 
   Dexcom Inc.                    DXCM                                             14.7%                                     22.9%         28.0 
                                                                                                                                   Source: LSEG 

No companies in the energy sector made the list.

All of these companies have projected revenue CAGR more than twice the 6.5% projection for the S&P 500. For EPS, all but Brown & Brown have higher CAGR projections than the S&P 500’s 13.9%.

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10-23-25 1129ET

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