The average price-earnings ratio the past century has been 14. This bloated market balooned that ratio to a record 29. The downdraft since July 17 reduced it to 25. That means we're still about 80 percent overvalued. And to get even for the past 16 years of soaring values, we may have to trade under a 14 PE for awhile.
At least I'm not alone.
I'm watching a dozen of stocks. Only 2-3 of them I will ever buy. The rest is just to listen to the market. Among them are INTC, CPQ, IBM.
There used to be a rule of a thumb that P/E awarded by market to a stock was close to the rate of its earning growth. It means that if EPS growth is 20%, than P/E could be close to 20.
IBM. P/E=20 Has no revenue growth in a long while. Had in the past some EPS growth thanks to the staff cuts and shares buy back, but how much can they cut.
INTC. Just a couple of years ago it was a growing company with P/E=11-13. Now P/E=25 and Revenue, EPS, profits margin are falling.
CPQ. P/E=38 EPS and profit margin fell to almost zero.
All those companies has no turnaround in sight.
When the economy was growing, market, for whatever reasons, was tolerating inflated valuations, but with the slowdown in the economy everything may come back to reasonable. I wouldn't be surprised to see some big names going 50% down.
JMHO.
BTW, just discovered this thread and enjoyed reading. |
