Overvalued is in the eye of the beholder. Firms like PFE,
G, PG, and KO deserve very high multiples because they are
not cyclicals and have earnings growth consistency. These
firms also have track records-many have been in business in
excess of 100 years. Of the original DJ30 only GE remains.
In the dividend/earnings growth equity valuation models,
consistency of earnings is very important when these earnings
get compounded. In the case of PFE, G, PG, KO, the market is
correct in recognizing that there is something unique about their businesses-they have withstood the test of time.
We'll probably get multiple expansion on the drillers-this
cycle could last ten years. But remember that oil drillers
and technology issues are cyclical issues-they will experience
up and down cycles based on many factors beyond your control.
When these firm's have down years, it screws up the earnings
compounding effect of the valuation model. Cyclicals do not
deserve PEs the likes of PFE, KO, G, PG, etc. Now, a cyclical
can become a stock like PFE, KO, G, PG, etc.-but the odds
are highly unlikely. There are some stocks that carry clout,
they've earned their multiples. MSFT was on its way, but
lately it's being called into question. |
