Equities Not a Bargain

Even if you don't buy my argument that there is plenty more downside to come as far as the U.S. economy is concerned, that doesn't necessarily mean you should acquire or own stocks.

Aside from the fact that revenues aren't keeping pace with profits and the latter are in many cases being pumped up by quick fixes that undermine future prospects -- as I noted Friday in ""Wall Street's Gains Equal Main Street's Loss?" -- the reality is that equities simply aren't a bargain.

Indeed, the Pragmatic Capitalist says as much in a graph-filled post entitled "Is the Market Cheap":

I’ve compiled a few different measures of valuation for your consideration. Regular readers know that I am not much a “value” investor. Value, in my opinion is in the eye of the beholder. Is Apple (AAPL) cheaper at a high P/E than GE at a low valuation? Perhaps yes, perhaps no. Most valuation metrics are based on the guesses of the analyst community - something that I believe is entirely unreliable. Nonetheless, here are a few measures to help you put things in perspective:

Comments

[Ricard]

Apparently my understanding of value investing is different than yours. Value investing has to do with the integrity of the balance sheet, and with earnings being multiples higher than the company's fixed costs. Then, once integrity is established, see whether or not earnings streams are comparable to prevailing rates - if they are out-sized, then the company is a buy.

After that, it's all subjective. I think AAPL's not a value stock because its product is highly dependent upon fickle customers. It is in a discretionary market, and just happens to command the lion's share of industry profits even though it is not necessarily the low cost producer. That can easily change, IMHO.

That, and its earnings streams would make for a low yielding bond at this time. Of course that may change in the future, but I don't see AAPL growing indefinitely at 20% yoy - it is subject to various forms of cannibalization.

Regarding your charts - no idea what the first one is, the second I attribute to the Wal-mart-ization of America (i.e. larger listed corporate sector overall relative to GDP), and the third chart actually seems to be sending mildly bullish signals.

2009 Jul 26 03:54 AM

[fran]

as the author stated-- "..... in the eyes of ..."

all VALUE criteria may vary, person to person. ah, if life could have only one definition. how simple it could be.


On Jul 26 03:54 AM Ricard wrote:

> Apparently my understanding of value investing is different than
> yours. Value investing has to do with the integrity of the balance
> sheet, and with earnings being multiples higher than the company's
> fixed costs. Then, once integrity is established, see whether or
> not earnings streams are comparable to prevailing rates - if they
> are out-sized, then the company is a buy.
>
> After that, it's all subjective. I think AAPL's not a value stock
> because its product is highly dependent upon fickle customers. It
> is in a discretionary market, and just happens to command the lion's
> share of industry profits even though it is not necessarily the low
> cost producer. That can easily change, IMHO.
>
> That, and its earnings streams would make for a low yielding bond
> at this time. Of course that may change in the future, but I don't
> see AAPL growing indefinitely at 20% yoy - it is subject to various
> forms of cannibalization.
>
> Regarding your charts - no idea what the first one is, the second
> I attribute to the Wal-mart-ization of America (i.e. larger listed
> corporate sector overall relative to GDP), and the third chart actually
> seems to be sending mildly bullish signals.

2009 Jul 26 01:58 PM

[DVW]

If you learn to trade along with the trend up OR down, then you wont care if it's really selling for what it's worth or even worthless. None of the internet stocks were worth anything in late 1990's, but that didnt stop them from going up much higher than anyone thought before they went to zero! Trading is the ONLY way to make money in this environment and will be for some time. Buy and hold and fundamental analysis is far too risky to bet your future on.

2009 Jul 26 07:27 PM

[Ricard]

True, but the author also asserts that "Most valuation metrics are based on the guesses of the analyst community"...one look at AAPL's current book and earnings stream would almost summarily disqualify it as a 'value' stock (nothing to do with analyst opinion and everything to do with company reports). If the stock continues to 'grow' at its current pace it may one day justify it being a 'value' stock, but we're talking about two different styles of investing now.

On Jul 26 01:58 PM fran wrote:

> as the author stated-- "..... in the eyes of ..."
>
> all VALUE criteria may vary, person to person. ah, if life could
> have only one definition. how simple it could be.

2009 Jul 27 12:14 PM

[Ricard]

lol, I would counter that if you learn to trade along with the fundamental indicators, you wouldn't care what it's selling for 1, 2 or 10 months out. If anything, if it goes DOWN, it would be a stronger buy signal to you.

Fundamentals for various stocks looked incredibly cheap in Oct-Nov last year and March of this year. Incidentally that was when I did most of my buying and am up nearly 80% on my stock holdings. Minimal trading involved.


On Jul 26 07:27 PM DVW wrote:

> If you learn to trade along with the trend up OR down, then you wont
> care if it's really selling for what it's worth or even worthless.
> None of the internet stocks were worth anything in late 1990's, but
> that didnt stop them from going up much higher than anyone thought
> before they went to zero! Trading is the ONLY way to make money in
> this environment and will be for some time. Buy and hold and fundamental
> analysis is far too risky to bet your future on.

2009 Jul 27 01:03 PM