Stocks Are Not Cheap Or Expensive, But Are Priced Just Right; But They Still Have Significant Risk [View article]
I am very familiar with Hussman and Grantham's projections. Their predictions are lower than what I think the market will return over the next 10 years.
One of Grantham's main points is that company profit margins are at an all-time high and should revert to the mean. I believe there should be some mean reversion. However, I don't think they will revert as much as Grantham is predicting. This is primarily due to my belief that technology has created some permanent gains in operating margins.
I would agree that high quality stocks are very attractive. It is amazing how cheap some of these stocks are.
Stocks Are Not Cheap Or Expensive, But Are Priced Just Right; But They Still Have Significant Risk [View article]
If it's that bonds are more expensive than stocks, there a couple factors for this.
First, the baby boomers are scared to own stocks and need income. Hence, demand from them may be suppressing bond yields.
Second, the economy is very weak and there are deflationary pressures. This will keep bond yields at artificially low levels. The dropping of the 10 year over the past month like a stone to 1.5% means the markets are not anticipating the Fed to move on interest rates anytime soon.
In the early 1940s stocks sold at P/E ratios of 7 and the 10 year bond yield averaged 2.0%. Anything is possible in this crazy world. Just because interest rates are low does not mean stocks are necessarily cheap. If interest rates are low due to deflation and a weak economy, it could be argued stocks are expensive at 14x earnings.
The Long Case For P.F. Chang's China Bistro [View article]
Thanks. However, most of my productive work is done by studying the past. When companies I own have been bought out, most of the time my estimated intrinsic value has been very close to buyout price.
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
With the 10 year T-Bond yield hitting the lowest level in our country's history or 220 years, stocks are not necessarily cheap. Stocks should be valued on interest rates and earnings expectations. The problem with this low level of interest rates is that the market is telling you the economy is 'sick' and deflation is a risk. Hence, earnings are at risk and there is significant risk with stocks at the current valuation level.
Trailing 12 Mo. EPS for the S&P 500 Index is 86.95. (This is from Barron's.) As of the close on June 1st, the S&P 500 Index sells at 14.7 times earnings. This is above the average P/E ratio since 1937 of 14.0. At the most recent major bear market bottoms, October 1974 and March 2009, stocks were priced at P/E Ratios of 6.7 and 7.8, respectively. To say stocks are cheap is not accurate and I would say reckless. (That is not ment to be a cheap shot. It's based on facts and history.)
Historically stocks have traded between 7 and 20 times earnings. At 10 times earnings stocks would be considered cheap. At the current valuations, the market is fairly valued. As I said before, anyone who says stocks are cheap are trying to sell you something or do not understand valuations in the context of history. (Once again, not meant to be a cheap shot. Just a statement of opinion supported by facts.) I will be publishing an article supporting my opinion with in-depth analysis. Stay tuned.
How To Invest In The Most Undervalued Asset In The World: Natural Gas [View article]
I would look at Loews (L). They own an interest in a natural gas pipeline. They have grown BV/Sh at 10.0% per year over the past 20 years and 11.2% over the past 10 years. Regardless of their natural gas exposure, the stock is cheap.
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
This is one of the reasons why I analyze a company's free cash flow when looking at potential investment opportunities. Unlike earnings or dividends, it can't be maniuplated or faked. I think companies that opportunisitcally buy back their shares when they are cheap will be the better performers over the next decade.
Look at a company like DST systems. Shares oustanding have declined from 120 million to 44 million.
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
Valuation is both a statistic and a fundamental calculation. I believe valuation is the biggest driver of returns for the stock market or individual stocks.
Since 1936 the stock market has returned 10 percent per year. My point is that the market is slightly overvalued relative to its historical P/E ratio. To put it another way, I believe from April 30, 2012 to April 30, 2022 the stock market will return below 10 percent a year because it is overvalued.
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
I thought I saved a chart illustrating the attractiveness of dividend paying stocks with consistent increasing in dividends. I looked for it and could not find it. The chart went back about 40 years. Compared to the market these stocks were at the bottom end of their historical relative P/E ratio.
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
It's a recovery. But it's akin to 1998 when those baseballs were flying out of the park. Unprecedent fiscal and monetary stimulus is akin to the steroids those ball players were using. Social Security is set to go bankrupt in 2033 if nothing is done. (That's the year I turn 63.) Hopefully our economy won't turn out like their bodies 30 years down the road.
Stocks Are Not Cheap Or Expensive, But Are Priced Just Right; But They Still Have Significant Risk [View article]
One of Grantham's main points is that company profit margins are at an all-time high and should revert to the mean. I believe there should be some mean reversion. However, I don't think they will revert as much as Grantham is predicting. This is primarily due to my belief that technology has created some permanent gains in operating margins.
I would agree that high quality stocks are very attractive. It is amazing how cheap some of these stocks are.
Stocks Are Not Cheap Or Expensive, But Are Priced Just Right; But They Still Have Significant Risk [View article]
First, the baby boomers are scared to own stocks and need income. Hence, demand from them may be suppressing bond yields.
Second, the economy is very weak and there are deflationary pressures. This will keep bond yields at artificially low levels. The dropping of the 10 year over the past month like a stone to 1.5% means the markets are not anticipating the Fed to move on interest rates anytime soon.
In the early 1940s stocks sold at P/E ratios of 7 and the 10 year bond yield averaged 2.0%. Anything is possible in this crazy world. Just because interest rates are low does not mean stocks are necessarily cheap. If interest rates are low due to deflation and a weak economy, it could be argued stocks are expensive at 14x earnings.
Stocks Are Not Cheap Or Expensive, But Are Priced Just Right; But They Still Have Significant Risk [View article]
The Long Case For P.F. Chang's China Bistro [View article]
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
Trailing 12 Mo. EPS for the S&P 500 Index is 86.95. (This is from Barron's.) As of the close on June 1st, the S&P 500 Index sells at 14.7 times earnings. This is above the average P/E ratio since 1937 of 14.0. At the most recent major bear market bottoms, October 1974 and March 2009, stocks were priced at P/E Ratios of 6.7 and 7.8, respectively. To say stocks are cheap is not accurate and I would say reckless. (That is not ment to be a cheap shot. It's based on facts and history.)
Historically stocks have traded between 7 and 20 times earnings. At 10 times earnings stocks would be considered cheap. At the current valuations, the market is fairly valued. As I said before, anyone who says stocks are cheap are trying to sell you something or do not understand valuations in the context of history. (Once again, not meant to be a cheap shot. Just a statement of opinion supported by facts.) I will be publishing an article supporting my opinion with in-depth analysis. Stay tuned.
Berkshire Hathaway: How To Close The Valuation Gap [View article]
Newsflash: The Dividend Aristocrats Found The Lost Decade [View article]
Good article. It goes to show you a simple approach to investing can go a long way towards generating nice returns.
A nice follow-up article would be to select 20 stocks from the current day aristocrats and monitor their performance for the next 10 years.
Tony
How To Invest In The Most Undervalued Asset In The World: Natural Gas [View article]
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
Look at a company like DST systems. Shares oustanding have declined from 120 million to 44 million.
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
Since 1936 the stock market has returned 10 percent per year. My point is that the market is slightly overvalued relative to its historical P/E ratio. To put it another way, I believe from April 30, 2012 to April 30, 2022 the stock market will return below 10 percent a year because it is overvalued.
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
BTW, thanks for sharing the article by Richard Shaw. It makes the point about dividend paying stocks.
Tony
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]
Yes, They Do: Low Interest Rates Do Make Stocks Cheap [View article]