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Strategies & Market Trends : Guidance and Visibility
AAPL 272.55-0.1%Nov 14 9:30 AM EST
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To: SusieQ1065 who wrote (17871)9/23/2001 8:57:43 PM
From: Teri Garner  Read Replies (1) of 208838
 
Stocks not as cheap as they look

Kathleen Pender

Given how far the market dropped last week -- the Dow industrials were down 14 percent and the Nasdaq composite was off 16 percent -- you'd think that stocks must be cheap by now.

You'd be wrong, at least by historical measures.

Using the most basic valuation -- price/earnings ratios -- stocks are less expensive than they were but still not bargain basement.

That's because earnings are falling as fast or faster than stock prices, which is not unusual at this stage in an economic cycle.

As of Friday, the Standard & Poor's 500 index was trading at 26 times actual earnings for the latest four quarters.

Since 1981, the average PE ratio on the S&P 500 was 17.2. The highest was 32.9 in 1998. The lowest was 7.3 in 1981, according to S&P.

There are other ways to measure earnings. Most stock analysts like to use operating earnings (which exclude all kinds of special charges) projected for the next four quarters. This usually results in higher earnings, and thus a lower PE, than using actual earnings.

But even using this more liberal yardstick, stocks still don't look like raging bargains.

The S&P 500 is trading at 18.6 times projected operating earnings, compared with a long-term average of 15 times, according to Thomson Financial/First Call, but those earnings estimates may be overly optimistic and out of date.

sfgate.com
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