OT - Valuations....
Chuzz,
Most importantly, I hope you and your wife are holding up.
I've been playing around with your CNPEG and CNPEG2 for a week and a half now...it's been fun...<g>. I can appreciate what you're trying to do with each variation and fair and accurate valuations are probably elusive at best. I've thought of a couple of issues that you may have dealt with...
First, use of the S&P 500 YPEG to assess "fair" against the S&P. The first thing that struck me was the magnitude of the S&P 500 YPEG (You had cited 3, I found it to be 3.9...shrug...)...The revelation made me want to short an S&P index fund....Once I got past that emotion, I found that what happened was that use of the YPEG500 in sectors that had historically lower PEs/YPEGs would show extremely high "fair prices". For example the group "Diversified Operations" has an average P/E of about 16, Year 2000 earnings growth of 16%, and a 5-year consensus of 12.6%. This group would likely never see a valuation comparable to the S&P.
It struck me then that perhaps it would be better to pick the YPEG of the sector in which the individual company exists to normalize against. This seemed to provide a seemingly more consistent view of fair...Even this view had it's problems through particularly for companies that were given higher valuations within their peer group, e.g., DELL. In this situation a very low "fair price" resulted. The thought then developed to consider a YPEG based on the average historical P/E of the issue...that is, an issue is valued by a number of factors, primarily it's own characteristics and adjusted for by the market by perceptions of the sector and the overall market. I haven't back tested this approach, but there it is...
The last point is the use of Beta. Interesting....if an issue has a high Beta and is currently trading at a P/E which is a trending towards a historical low is this favorable or unfavorable condition? After I back test the average P/E weighted YPEG, as above. I may do some playing with the Beta.
Just some thoughts from a novice amateur analyst....
Best Regards,
Jim |
