How Can You Call This Overvalued?

by: Dana Blankenhorn


Tech is flying, but retail is falling.

Big bank stocks can be had for P/Es under 10.

GM at a P/E of 5, Ford at 7, and the market is overvalued?

When markets go up, there are always people screaming that stocks are overvalued and headed for a fall.

No doubt, some are. Fashions change. Risk on becomes risk off, and vice versa.

But it's hard to see the current market as seriously overvalued when there are so many good sectors selling at such low, low prices.

Take retail. Please. There is a distinct lack of appetite for retailers, even grocery stores which should be the last places Amazon (NASDAQ:AMZN) can take over. Costco (NASDAQ:COST) is up only 6% in the last year. Kroger (NYSE:KR) is practically flat, Whole Foods (NASDAQ:WFM) is down 40%.

The only big gainer is Wal-Mart (NYSE:WMT), but they were so down I found myself pounding the table for them last year and even picked up a little myself, getting out with a nice profit. Wal-Mart has moved up more since then, but I moved my profits into Intel (NASDAQ:INTC), which has done even better, so no regrets.

This is just one example. There are others.

Cars. Anyone want a car stock? Auto sales keep going up, but Ford (NYSE:F) is selling at a Price/Earnings multiple of 7, and General Motors (NYSE:GM) is at 5. Five! You do know they sell more Chevys than Teslas (NASDAQ:TSLA) and the Chevys actually make money, don't you? If Apple (NASDAQ:AAPL) or Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) were really interested in getting into the car business they could buy GM for pocket change, and it would actually be accretive.

Now, does anyone want a bank? A big bank? These places are in the business of selling money. They get money practically free from the Federal Reserve and they sell it, sometimes, at prices of up to 18% -- look at your credit cards. But you can't give banks away, especially big banks. Citicorp (NYSE:C) is at a P/E of 9, JP Morgan Chase (NYSE:JPM) is at 10.5, and Wells Fargo (NYSE:WFC) is at 12. These guys aren't selling mainframes! They are printing money with them.

OK, maybe you assume that companies like Amazon are going to take over the tomato business, that Tesla is going to wipe out GM, and that a kid with an app can take out Wells Fargo faster than you can say swipe right. But if Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) is worth almost 15 times earnings, don't you want a little bit of a stock that literally sells money for more than it costs?

There are a lot of sectors of this market I consider pricey. Casinos, for instance. Wynn Resorts (NASDAQ:WYNN) is not worth 50 times earnings in an average market. Restaurants, for instance. Pizza Hut parent YUM Brands (NYSE:YUM) is worth 28 times earnings? McDonald's (NYSE:MCD) is worth 27? And let's not get started on computer security where companies sell at 12 times revenue and jump whenever there's a crime wave.

The point is that if you're a contrarian investor, right now, there are lots of places to hide out from the speculation, stocks whose managements will pay you to own them. [AT&T (NYSE:T) still has that fat 5% yield, and I think they're good for it.] It's no good just saying "stocks are too high" and taking almost zero yield in bonds. There is a lot of value in this market.

Disclosure: I am/we are long AAPL, INTC, GOOGL, KR, WFC, AMZN, COST.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.