Why A Stock Market Bubble Is Forming Right Now [View article]
Outside of the tech bubble of the late 1990s, stocks have traded between P/E ratio lows of 7 to 9 times earnings in 1974, 1982 and 2009, and highs of 18 to 20x in 1961, 1972, 1987 and 2007. The average valuation over the past 60 years is about 15 times earnings. Today the stock market trades at about 18x earnings. I use this fact as my assessment that the stock market is richly valued.
Why A Stock Market Bubble Is Forming Right Now [View article]
I agree that the market has become richly valued and the economy stinks. However, you have had a number of bearish articles in the last 18 months and the market continues to advance. It goes to show you how difficult it is to predict the markets.
My advice to investors is to stop trying to predict economic and stock market movements. It is way too hard. The best money managers in history are fundamental, value based investors. It will be on display this weekend at the Berkshire Hathaway annual meeting. Buffett has taught us for decades to ignore the markets. If investors follow Buffett's advice and looked to buy undervalued, fundamentally strong companies, they will generate much better long-term returns than trying to predict market movements.
ADDvantage Technologies: An Undervalued 'George Bailey' Play For A Richly Valued Market - Part III [View article]
As a distributor of cable products they are in a dying industry. However, I am not concerned. AEY is not a company I intend to hold for 10 years. It is probably a 12 to 24 month holding. What gives me comfort in holding the company is its strong balance sheet and very cheap valuation. It is a small position. However, I think the risk-reward is very favorable.
As Warren Buffett once said, "Price is what you pay, value is what you get." With AEY, I am getting a lot of value for very little price.
Consumer Staples: Like Apple At $700 Or Gold At $1900 [View article]
Alan - your article is way off base.
The valuation of staples stocks is not even close to bubble valuation levels. Comparing the current valuation of consumer staple stocks to Apple and Gold at their peak is an (I can't help myself) oranges to apples comparison. The relative and absolute valuation numbers below support my case.
First, let's look at five largest consumer staples (WMT, PG, PEP, KO, PM) companies on a trailing 12 month P/E. Below are the five companies:
WMT: 15.6 PG: 20.5 PEP: 20.4 KO: 20.8 PM: 18.7 Average of five companies: 18.8
Collectively they sell at a 4.5 percent premium to the S&P 500 Index's 18.3 P/E ratio. This is hardly a bubble valuation.
We are experiencing the worst economic recovery since World War II. GDP growth is up 40% of the typical post World War II recovery. Given the economic environment, one could argue these companies are undervalued.
Second, the current valuation of these companies are not even close to the bubble valuation levels achieved in the late 1990s/early 2000. Below are the peak P/E ratios for four of these five companies during the late 1990s/early 2000 time period. (Note: Philip Morris did not exist in its current form in the 1990s.)
WMT: 61.2 PG: 49.4 PEP: 34.3 KO: 57.4 Average of four companies: 50.6
The current P/E ratio average of 18.8 is 63 percent below the 50.6 bubble valuation P/E achieved in the late 1990s/early 2000.
Consumer staples stocks have been on a tear lately. However, they are nowhere near the valuation level that would characterize them as a bubble.
Before You Sell Your Blue-Chip Dividend Stock ... [View article]
Do not assume these high quality companies will always deliver a great return. For example, Coca-Cola's price is down from where it was 15 years ago. (It peaked at a split-adjusted price of $44.47 in July 1998.) Including reinvested dividends, that's an annual return of 1.8%. After inflation, that a loss of 0.6% per year.
Valuation drives long-term stock returns. In July 1998 Coke sold at 60 times earnings. Earnings are up three fold over the past 15 years but the stock price hasn't budged. Today Coke sells at about 20 times earnings. Much of the stock's poor return over the past 15 years is the result of valuation compression.
Coke sold at 8 times earnings in 1982. Imagine if it sold at that level 15 years from now? It'd be another 15 years of zero returns after inflation for Coke investors. It's very unlikely. However, it is within the range of possible outcomes. My guess is Coke will return about 6 to 8 percent over the next 15 years, including dividends.
My key point is when buying stocks, be sure to pay attention to valuations.
The Stock Market's Valuation Is Getting Rich - Part I [View article]
Sorry about the error. It did not copy over correctly. The 10th worst bear market was from May-1946 to Nov-1946 when the total return was -21.8%. The P/E ratio peaked at 16.1 and bottomed at 12.8.
FYI, a 20x multiple on the S&P implies a price target of 1770.
My Top Picks For The Coming Decade Of Stocks, Part III [View article]
I learned a long time ago, you can't look backwards and dissect individual stock picks. Fundamentally unsound companies will generate fabulous returns. It happens all the time. Think of tech stocks in the 1990s. How about Enron, which obviously did phenominally well for many years. However, in the end it was all a mirage. Sooner or later the market will recognize the unfunded penion liability. I just have no idea as to when.
I am in no way intending that Whirlpool will end up like Enron. However, if you dig deep into companies and own a portfolio of sound business, that are conservatively financed and attractively valued you should de very well. You need to focus on what, as an investor, you can control. Not to brag or go on an ego trip, but to make a point, from December 2000 to December 2012, I have a cumulative return of 185.4% vs. 38.6% for the S&P 500 Index. I have missed out on plenty of huge return stocks. Apple comes to mind. However, IMHO, if you focus on risk, the returns over periods of 10 years or more will take care of themselves.
Attractively Valued Blue-Chip Dividend Champions For Your Retirement Portfolios [View article]
Good article. However, Kimberly Clark's growth is a mirage and shows sometimes how the P/E ratio can be a flawed valuation metric. If you 'look under the hood', KMB's management is using the 'oldest trick in the book' to boost EPS. Normalized free cash flow has grown at 0.1% per year over the past five years. EPS has grown mostly because they have swapped debt for stock buybacks.
If you adjust for the debt to equity swap, the underlying growth of KMB's business has only been 1.5% per year. IMHO, with an Enterprise Value/FCF ratio of 17 and almost no growth, the stock is a sell.
I am hardly trying to 'get responses'. And I am hardly a hater of Apple. Believe it or not, at some price I believe the stock is a buy.
My point is the number of responses is indicative of how obsessed investors are with Apple. I believe much of investing is psychology related - which can't be captured by standard financial analysis. Crowd behavior will push stocks or industries to the highest price levels. We saw this with tech stocks in the late 1990s. We saw this with housing in the mid-2000s. We saw this with energy stocks in 2007-2008. It is very rare you see this with a single stock. When you do, as in the case of Apple, I think it is time to sell.
I am in no ways suggesting you short the stock. The company is cheap, profitable and has a boatload of cash. These are not characteristics of a good short idea. My point is that Apple will underperform the S&P 500 Index over the next 5 to 10 years - not crash and burn.
The article was intentially written from a non-analytical perspective. I didn't want to focus on profit margins, P/E ratio, market share, etc. I wanted to focus on Apple in the context of history and its immense size.
I do not understand why they don't pay a higher dividend. I think Apple's capital allocation skills are poor. My cynical side tells me they don't pay a higher dividend because of the number of employees that own options. (It is to the detriment of the option owner if the company pays a dividend.)
Why A Stock Market Bubble Is Forming Right Now [View article]
Why A Stock Market Bubble Is Forming Right Now [View article]
Why A Stock Market Bubble Is Forming Right Now [View article]
My advice to investors is to stop trying to predict economic and stock market movements. It is way too hard. The best money managers in history are fundamental, value based investors. It will be on display this weekend at the Berkshire Hathaway annual meeting. Buffett has taught us for decades to ignore the markets. If investors follow Buffett's advice and looked to buy undervalued, fundamentally strong companies, they will generate much better long-term returns than trying to predict market movements.
ADDvantage Technologies: An Undervalued 'George Bailey' Play For A Richly Valued Market - Part III [View article]
As Warren Buffett once said, "Price is what you pay, value is what you get." With AEY, I am getting a lot of value for very little price.
.
Consumer Staples: Like Apple At $700 Or Gold At $1900 [View article]
The valuation of staples stocks is not even close to bubble valuation levels. Comparing the current valuation of consumer staple stocks to Apple and Gold at their peak is an (I can't help myself) oranges to apples comparison. The relative and absolute valuation numbers below support my case.
First, let's look at five largest consumer staples (WMT, PG, PEP, KO, PM) companies on a trailing 12 month P/E. Below are the five companies:
WMT: 15.6
PG: 20.5
PEP: 20.4
KO: 20.8
PM: 18.7
Average of five companies: 18.8
Collectively they sell at a 4.5 percent premium to the S&P 500 Index's 18.3 P/E ratio. This is hardly a bubble valuation.
We are experiencing the worst economic recovery since World War II. GDP growth is up 40% of the typical post World War II recovery. Given the economic environment, one could argue these companies are undervalued.
Second, the current valuation of these companies are not even close to the bubble valuation levels achieved in the late 1990s/early 2000. Below are the peak P/E ratios for four of these five companies during the late 1990s/early 2000 time period. (Note: Philip Morris did not exist in its current form in the 1990s.)
WMT: 61.2
PG: 49.4
PEP: 34.3
KO: 57.4
Average of four companies: 50.6
The current P/E ratio average of 18.8 is 63 percent below the 50.6 bubble valuation P/E achieved in the late 1990s/early 2000.
Consumer staples stocks have been on a tear lately. However, they are nowhere near the valuation level that would characterize them as a bubble.
Before You Sell Your Blue-Chip Dividend Stock ... [View article]
Valuation drives long-term stock returns. In July 1998 Coke sold at 60 times earnings. Earnings are up three fold over the past 15 years but the stock price hasn't budged. Today Coke sells at about 20 times earnings. Much of the stock's poor return over the past 15 years is the result of valuation compression.
Coke sold at 8 times earnings in 1982. Imagine if it sold at that level 15 years from now? It'd be another 15 years of zero returns after inflation for Coke investors. It's very unlikely. However, it is within the range of possible outcomes. My guess is Coke will return about 6 to 8 percent over the next 15 years, including dividends.
My key point is when buying stocks, be sure to pay attention to valuations.
The Stock Market's Valuation Is Getting Rich - Part I [View article]
FYI, a 20x multiple on the S&P implies a price target of 1770.
The Stock Market's Valuation Is Getting Rich - Part I [View article]
Procter & Gamble: A BMW Quality Company Selling At A Toyota Price [View article]
Rocky Mountain Is A Chocolate Covered Growth Stock [View article]
My Top Picks For The Coming Decade Of Stocks, Part III [View article]
I am in no way intending that Whirlpool will end up like Enron. However, if you dig deep into companies and own a portfolio of sound business, that are conservatively financed and attractively valued you should de very well. You need to focus on what, as an investor, you can control. Not to brag or go on an ego trip, but to make a point, from December 2000 to December 2012, I have a cumulative return of 185.4% vs. 38.6% for the S&P 500 Index. I have missed out on plenty of huge return stocks. Apple comes to mind. However, IMHO, if you focus on risk, the returns over periods of 10 years or more will take care of themselves.
Attractively Valued Blue-Chip Dividend Champions For Your Retirement Portfolios [View article]
If you adjust for the debt to equity swap, the underlying growth of KMB's business has only been 1.5% per year. IMHO, with an Enterprise Value/FCF ratio of 17 and almost no growth, the stock is a sell.
Is Apple Really A 'Buy'? [View article]
The key to successful investing is to know what you don't know and stay away from it.
Is Apple Really A 'Buy'? [View article]
My point is the number of responses is indicative of how obsessed investors are with Apple. I believe much of investing is psychology related - which can't be captured by standard financial analysis. Crowd behavior will push stocks or industries to the highest price levels. We saw this with tech stocks in the late 1990s. We saw this with housing in the mid-2000s. We saw this with energy stocks in 2007-2008. It is very rare you see this with a single stock. When you do, as in the case of Apple, I think it is time to sell.
I am in no ways suggesting you short the stock. The company is cheap, profitable and has a boatload of cash. These are not characteristics of a good short idea. My point is that Apple will underperform the S&P 500 Index over the next 5 to 10 years - not crash and burn.
The article was intentially written from a non-analytical perspective. I didn't want to focus on profit margins, P/E ratio, market share, etc. I wanted to focus on Apple in the context of history and its immense size.
Is Apple Really A 'Buy'? [View article]