Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: S100 who wrote (105420)	9/23/2001 12:49:11 AM
From: Ibexx	Respond to of 152472

Barron's cover story: SEPTEMBER 24, 2001 Buyer's Market With share prices slipping and rates near three-year lows, stocks look undervalued By Michael Santoli Over the past few years, the stock market has been called a lot of names: exuberant, risky, an over-inflated bubble, a burst bubble and, since early last year, a bear. One thing it has rarely been called lately is a bargain. Yet stocks had fallen quite a bit in the months running up to the recent terrorist attacks in New York and Washington, D.C., and now some analysts are beginning to whisper that stocks may finally be cheap, especially after last week's selloff. One reliable method for gauging the fair value of stocks shows the market to be undervalued by more than 17% right now. The last time the discount from fair value approached such a magnitude was October 1998, when the market looked 16% undervalued, thanks in large part to rampant selling fanned by fears of a global financial crisis. The crisis was averted, and it proved an excellent buying opportunity for intrepid investors. We may be facing a similar situation now, according to the so-called Fed Model for valuing stocks. At its core, this model compares the interest rate being paid on 10-year Treasury notes to the "earnings yield" of stocks in the Standard & Poor's 500 Index. This earnings yield is simply the expected earnings of companies in the S&P 500 Index divided by the index's current level. For the next 12 months, the collective earnings of the S&P 500 are expected to be $55 a share. Divide that by the index's current level of 965.8, and you get an earnings yield of 5.69%. That's well above the 4.69% rate being paid on 10-year Treasury bonds. When the earnings yield on stocks exceeds the Treasury rate by such a substantial margin, stocks are said to be undervalued. This means that investors are assigning less value to corporate profits, which should grow over time, than to the steady yield on government bonds. Conversely, when the earnings yield sits below the 10-year Treasury rate, the market is viewed as overpriced. Ibexx