Business Week (latest) has an interesting article on current P/E ratios in historical perspective.
businessweek.com@@YlY4@GQAzKpgKwAA/premium/20/b3578113.htm
(Unfortunately, one needs to be a subscriber to BW (or BW online) to get to the online version of BW and I don't dare post the whole article)
but here are some interesting excerpts:
"EXPONENTIAL. Edward M. Kerschner, PaineWebber Inc.'s chief investment strategist, argues that many investors have underestimated the power of the bull market because they haven't properly gauged the impact of lower interest rates and lower inflation. Kerschner says the fair value of equities increases at an accelerating rate as inflation falls. Consider a company with a 15% earnings-growth rate when inflation is 5%. Kerschner says its p-e should be about 15. Cut the inflation rate to 3%, and the p-e for that 15% earnings growth rate doubles to 30. Cut inflation another point, to 2%, and the fair p-e jumps to more than 60. Says Kerschner: ''Just as with a bond, when you lower the rate at which you discount the earnings, the value increases exponentially."
"Most of the time, the oft quoted p-e's are based on the past 12 months' earnings. That's a firm number that investors can find in the stock tables every day. But A. Marshall Acuff Jr., equity strategist at Salomon Smith Barney, says it's useless. ''Investors look ahead, not back,'' says Acuff. ''Why use a historical number?
Factoring in projected earnings, the S&P looks a bit more attractive: a p-e of 21.7, according to First Call Corp."
PS Hm, looks like that link may work for anybody?!
Following this article is a nice peace on Internet Portals and "The War for Eyeballs". |
