Tech Is Cheap, Banks and Financial Are Expensive

Includes: KBE, SPY, XLF, XLK
by: FP Trading Desk

If the S&P 500’s top 25 leaders return to their 2007 multiples, we should see another 33% gain for the index to 1,394, according to Birinyi Associates.

Analysts at the research firm looked into whether or not the market is truly expensive after the rapid recovery from its March 9 lows. The top 25 performers since then have accounted for 36% of the S&P’s gain.

Birinyi calculated their multiples based on 2010 earnings estimates and compared them to the multiple at their 2007 peaks.

Google Inc. (NASDAQ:GOOG) topped the list. In 2007, when its shares were trading at $741, the stock was at 60x earnings. If it were to again trade at that multiple, the stock would be at $1,382, the analysts noted.

So while they are not suggesting Google will reach that level, their number-crunch does suggest many of today’s leaders are trading below their multiple levels of 2007.

Based on recent history, this exercise demonstrated that tech is cheap, while banks and financials are expensive.