Posts filed under “Valuation”
I am off to Maine today for a few days of fishing and economic debate and drinking. Before I go, I wanted to share a chart we pulled together in the office yesterday from the BBRG terminal. It was in response to the usual statement “This rally is driven by Fed printing and nothing else.”
Sorry, but I beg to differ. The chart shows that the rally has been driven — and in very large part — by a huge recovery in revenues and profits in corporate America following the financial crisis of 2007-09.
The white line shows the price of the S&P500 index from December 2007 to today. Red line is revenues, blue line is earnings. As you can see, earnings have led the rally off of the lows, multiple expansion took over in the middle, and most recently, earnings have accelerated. Higher revenues have paced higher stock prices as well.
I would be remiss if I did not acknowledge the role that lower borrowing costs lower companies’ expenses. That is a legitimate observation as to the impact of the Fed. For a variety of reasons, companies have chosen to engage in large buybacks as well, and that too plays a role.
However, the storytellers would have you ignore the enormous improvement in sales and profits in order to stick to the story that the market gains are ALL FED PRINTING ALL THE TIME.
Sorry, but that narrative fails.
Slate‘s Jordan Weissmann puts Apple’s product lines into perspective versus other large companies (Tech or not).
iPhone revenues alone eclipse that of either software behemoth Microsoft or online retail giant Amazon. Businessweek (September 2013):
“If the iPhone were its own company in the Standard & Poor’s 500-stock index, iPhone Inc. would outsell 474 of 500 companies; iPhone’s $88.4 billion in annualized revenue tops 21 of the 30 component companies in the Dow Jones industrial average—it would be the ninth-biggest stock in the Dow 30.”
Consider these two product lines:
iPhone = Google + eBay
iPad = Yahoo + Facebook + LinkedIn + Twitter + Group + Tesla
cick for bigger chart Source: JP Morgan It has become commonly accepted that stocks are very expensive, overbought and perhaps even in a bubble. JPMorgan Chase & Co.’s latest quarterly chart book (you can download it here) takes issue with those conventions. As you can see from the chart above, U.S. equity prices closely…Read More
click for ginormous version Source: The Telegraph Nice graphic from The Telegraph, showing relative valuations around the world, using P/E ratios, CAPE, and Price to Book. To be named “cheap”, markets had to be trading below their own historic valuation across all three measures. As the map to the left shows, only a handful…Read More
Source: Bespoke Investment Group How expensive are stocks? Its a question that seems to beget many different answers. Too often, the response reflects the responder’s investment posture. If they are long equities, they typically respond by saying “Not very.” If they are short, or in cash or in other risk assets, the answer is…Read More
Nice take from the Global Quantitative Research team at Societe Generale: Source: Societe Generale Quant Quickie SocGen goes on to add: • In a world where more and more assets are being pushed up to uncomfortably high valuation multiples, finding assets cheap enough to buy is a serious challenge for investors who need to…Read More
This is a preview of an upcoming column. “The four most dangerous words in investing are: ‘this time it’s different.’ ” -Sir John Templeton What do these words actually mean to investors today? As of late, more than a few pundits have been misinterpreting their meaning. With a wave of a hand, they…Read More
The Standard & Poor’s 500 Index hit an all-time high yesterday, closing at 1,897.45. The Dow Jones Industrial Average also hit a record, ending at 16,715.44. This should be tempered by noting that the Dow is up less than 1 percent so far this year, while the S&P 500 has gained about 2.7 percent. One…Read More
Are Valuations Really Too High? By John Mauldin Thoughts from the FrontlineMay 10, 2014 Take It to the Limit In a Perfect World The Future of Earnings How Did We Get Here? It’s Not Only Stock Market Valuations San Diego, Italy, and Nantucket The older I get and the more I research and study, the…Read More