Winsorization for Outliers in Clustering Non-Cyclical Stocks with K-Means and K-Medoids

Non-cyclical consumer sector stocks are often chosen by investors because the products in this sector are essential products that always in demand by society. Therefore, the demand for these products tends to be stable and defensive or less affected by economic shocks. However, it does not guarantee that every stock in this sector has good performance, thus it is necessary to group stocks based on their fundamental indicators in the form of financial ratios. This research aims to identify the best method by considering outliers and determining the clusters with the best fundamental performance as a recommendation for investors to make the right investment decisions. The data used in this study is secondary data with observations in the form of 50 non-cyclical consumer sector stocks. The variables used are Earning per Share, Return on Equity, Return on Assets, Debt to Equity Ratio, Price to Earnings Ratio, and Price to Book Value. The clustering results indicated that K-Medoids is the best clustering method, both on the data before and after handling extreme outliers with winsorization approach. However, the optimum number of clusters before and after winsorization are different, with 3 and 6 clusters. Considering the influence of extreme outliers and to get a more informative clustering result, the clustering result after the application of winsorization technique was chosen, which resulted in 6 clusters. Cluster 1, which consists of AALI, GGRM, INDF, and SGRO can be recommended because it has excellent fundamental performance, especially in terms of Earning per Share in 2022.