Latest News: Technology |  Celebrity |  Movies |  Apple |  Cars |  Business |  Sports |  TV Shows |  Geek

Trending

Filed under: News

 

Beating Back The Bubble Babble

Jan 6 2014, 7:36am CST | by

10 Updates
 
 

Comments

Full Story

Beating Back The Bubble Babble

WITH STOCKS AT or near alltime highs, financial publications and market pundits are providing plenty of hot air as they inflate a bubble by talking about a stock market bubble. All of that chatter is a plus from a contrarian perspective, even as valuations on the major U.S. equity market averages are near the high end of their historical ranges. The trailing-12-month P/E ratio of 25.5 on the S&P 600 Index (small caps) and 23.3 on the S&P 400 Index (midcaps) are well above median end-of-year P/E ratios dating back to 1995 of 21.9 and 20.9. Compared with the relative richness of smaller stocks’ valuations, large caps still look cheap. The S&P 500 now trades at 16.9 times earnings, which is actually below the 19-year median of 18.3, while the current dividend yield of 1.93% is higher than the 1.80% median.

Even at current prices, I’m still finding attractive stocks. There are certainly many growth stocks trading for rich valuations, but the beauty of active portfolio management is that you don’t need to own them. For instance, if you look at the S&P 500 you see that one of its most popular components is Netflix, the video subscription service, which trades for more than 300 times earnings.

Sometimes stocks do grow into their multiples, but I find Netflix hard to justify at these levels. Something much easier to digest is the modest valuation of a world-class franchise like APPLE (AAPL, 545), which trades for 14 times earnings and also rewards shareholders with a healthy 2.1% dividend yield. Believe it or not, if Apple were awarded the same earnings multiple as Netflix, the consumer electronics superstar would change hands at nearly $12,000 per share.

Plump multiples also abound among the various S&P 500 travel-booking websites. Expedia, Priceline and TripAdvisor all trade for more than 30 times earnings. Unlike many tech startups that have recently gone public, each of these companies actually makes a profit, but there are much less expensive stocks in the technology sector, especially among its largest members. For example, networking equipment company CISCO SYSTEMS (CSCO, 21), software king MICROSOFT (MSFT, 36), microchip titan INTEL (INTC, 25) and IT solutions provider IBM (IBM, 180) all trade for about 4 times earnings while also providing dividend payouts well above that of the S&P 500. In the case of Intel, you’re looking at a generous 3.6% yield.

The list of inexpensive large-cap companies in the S&P 500 is not only limited to the tech sector. I’m a fan of stocks in the capital goods sector like agricultural equipment maker DEERE & CO. (DE, 89) and construction equipment concern CATERPILLAR (CAT, 88), two names that also offer low earnings multiples and rich dividend payouts.

And the commodities space has bargain stocks, including oil driller ENSCO (ESV, 56), which trades for less than 11 times earnings and yields 4%, and mining and energy conglomerate FREEPORT-MCMORAN COPPER & GOLD (FCX, 35), which sports a P/E of 12 and a dividend payout of 3.6%. Rounding out my baker’s dozen of undervalued stocks are retailer KOHL’S (KSS, 55), utility operator ENTERGY (ETR, 62), medical device maker BAXTER INTERNATIONAL (BAX, 67) and banking giant WELLS FARGO (WFC, 45), nearly all of which boast below-average P/E ratios and above-average dividend yields.

Keep in mind that even as the Federal Reserve tapers its bond-buying program, interest rates are still near historic lows, with
money market funds yielding 0.01% on average today, compared with 4.5% at prior market peaks in 2000 and 2007./>

This fact, along with the inexpensive valuations of my holdings, abates any worries that I may have about a bubble in stocks. Don’t be dissuaded by the strong performance of the past year. Cheap stocks are still out there.

Source: Forbes

 

iPad Air Giveaway. Win a free iPad Air.

You Might Also Like

Updates


Sponsored Update

Update: 10

4 Firms In Iskandar Malaysia Get Facilitation Fund Totalling RM16.2 Million

Source: Malaysia Today

MALAYSIA-WEATHER-FLOOD
(Bernama) – Four companies have received the facilitation fund amounting to RM16.2 million from TERAJU@Iskandar Malaysia in an information sharing programme on business opportunities and assis ...
Source: Malaysia Today   Full article at: Malaysia Today 17 hours ago, 7:42am CDT
 


Advertisement


Update: 9

Selangor’s Watergate about to explode

Source: Malaysia Today

LEBANON-SAMAHA-AZMI BISHARA-ISRAEL
Anwar brought Wan Azmi to meet Khalid to try to resolve this matter. Anwar supports the RM2.5 billion claim but Khalid is stubbornly sticking to the figu ...
Source: Malaysia Today   Full article at: Malaysia Today 1 day ago, 4:12am CDT
 

More From the Web

Update: 8

GLCs told to provide RM7 billion to develop Bumiputera firms

Source: Malaysia Today

EurAsia Cup presented by DRB-HICOM - Day One
(The Malaysian Insider) – Putrajaya has directed government-linked companies (GLC) to generate RM7 billion in business opportunities for Bumiputera firms this year, Prime Minister Prime Minister Datuk Seri Najib Razak... R ...
Source: Malaysia Today   Full article at: Malaysia Today Jul 17 2014, 2:05am CDT
 

Update: 7

Rafizi shows proof of Putrajaya’s hand in contentious carpet-trader loan

Source: Malaysia Today

Eileen Ng, The Malaysian Insider PKR lawmaker Rafizi Ramli today revealed documents to prove Putrajaya interfered in the RM32 million Bank Rakyat loan to ‎controversial businessman Deepak ...
Source: Malaysia Today   Full article at: Malaysia Today Jul 16 2014, 2:16am CDT
 

Update: 6

PAS MP claims Bank Rakyat loaned carpet-trader RM215m, interest free

Source: Malaysia Today

(Malay Mail Online) – Controversial businessman Deepak Jaikishan (pic) was given a whopping RM215 million interest-free loan from state-owned Bank Rakyat, a PAS lawmaker alleged today, despite Putr ...
Source: Malaysia Today   Full article at: Malaysia Today Jul 14 2014, 5:52am CDT
 

Update: 5

MRCB, Nusa Gapurna and PKNS settle suit over RM3 billion PJ Sentral project

Source: Malaysia Today

(The Malaysian Insider) – Malaysian Resources Corp Bhd (MRCB), Nusa Gapurna Development Sdn Bhd (NGD) and PKNS Holdings Sdn Bhd have reached an out-of-court settlement over the ownership of ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 21 2014, 2:53am CDT
 

Update: 4

Story behind Syed Mokhtar’s ‘RM2.25 billion tax-exempt’ Bernas deal revealed, says PKR MP

Source: Malaysia Today

(The Malaysian Insider) – An innocuous written reply in Parliament has provided a peek into the cosy relationship between the Najib administration and Malaysia’s best-known businessman, Tan Sri Syed Mokhtar... READ M ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 15 2014, 12:56pm CDT
 

Update: 3

Constitutional monarchy still murky concept

Source: Malaysia Today

After the RM4.5 billion land sale, the Sultan of Johor secured a 15% stake in MOL Access Portal (MOL) for RM396 million and took a 20% stake in Berjaya Times... READ MORE ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 14 2014, 12:37am CDT
 

Update: 2

Sultan of Johor’s RM4.5 bil backlash?

Source: Malaysia Today

"GOLDEN ASIA" Tokyo Premiere Press Conference
Has Sultan Ibrahim of Johor’s succession of big money deals over the last six months caused the tide of public opinion to turn against Johor’s royal palace? ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 11 2014, 8:49am CDT
 

Update: 1

Putrajaya denies carpet dealer given interest-free loan

Source: Malaysia Today

Eileen Ng, The Malaysian Insider Putrajaya today refuted allegations that Bank Rakyat had allowed carpet dealer Deepak Jaikishan to repay a RM32 million loan without interest following interv ...
Source: Malaysia Today   Full article at: Malaysia Today Jun 11 2014, 5:44am CDT
 

Shopping Deals

 
 
 

<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

 

Comments

blog comments powered by Disqus

Latest stories

Ray Rice Suspended For First 2 Games of Regular Season
Ray Rice Suspended For First 2 Games of Regular Season
Baltimore Ravens running back Ray Rice was suspended by the NFL on July 24 for the first two gams of the 2014 regular season under its personal conduct policy.
 
 
San Diego Comic-Con 2014: Stan Lee Cancels Due To Laryngitis
San Diego Comic-Con 2014: Stan Lee Cancels Due To Laryngitis
Marvel legend, co-creator of most of movieverse characters, and overall nerdy comic guy, Stan Lee had to cancel his 2014 SDCC appearances due to illness.
 
 
&#039;Avengers: Age of Ultron&#039; and &#039;Ant Man&#039; Concept Art Pops Up At San Diego Comic-Con 2014
'Avengers: Age of Ultron' and 'Ant Man' Concept Art Pops Up At San Diego Comic-Con 2014
Marvel started dropping bombs on Comic-Con attendees before the show even began. Letting fans peek at the concept art, by releasing posters of Marvel Studios' 2015 films.
 
 
Chuck Knoblauch Arrested for Assault
Chuck Knoblauch Arrested for Assault
Former Minnesota Twins All-Star second baseman Chuck Knoblauch was arrested on July 23 for allegedly assaulting his ex-wife.
 
 
 

About the Geek Mind


Read more about The Geek Mind.