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Strategies & Market Trends : Fundamental Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: The Ox who wrote (2178)	8/7/2012 2:21:11 PM
From: bruwin	1 Recommendation Read Replies (1) \| Respond to of 4720

Good and interesting selection for your "10" stocks, TO. Several fine companies in that selection. You also said, ... "I know everyone has a different opinion but I truly hope we don't put PM in the portfolio. For one thing, the stock is up 50% in the last year and I think, fully valued at this point in time based on a lot of different issues." Apart from PM's Metrics I looked at in an earlier post, I thought I'd also put forward the following in support of PM, especially with regard to it being 50% up in the last year ... What we have here is the chart for PM for the last 4 years (that's the most I could get out of Bigcharts). It also shows the company's P/E ratio and trailing EPS. Now the way I see it, P/E is one of the most popular ratios for judging whether a stock is currently cheap or expensive. And for PM its P/E has ranged between about 18 to 20 for the last 4 years. Towards the end of 2008 PM's price was around $40 with a P/E of about 18. A year later it traded about 25% up at $50 with its P/E still at around 18. A year later it traded about 20% up at $60 with its P/E at around 19. A year later it traded about 30% up at $78 with its P/E still at around 19. It's currently trading about 18% up at $92 with its P/E between 19 and 20. For PM to show an appreciable, ongoing price increase at a fairly constant P/E ratio, it can only mean that the denominator, E, must have also been increasing. And we see that in the Trailing EPS part of the chart. So during 2008 and, say, 2010 one could possibly have said that PM was 'expensive' at a P/E of 18 to 19. When its price went to over $70 a year later one could also have said that it was 'expensive' at a P/E of 19. A year later we now see PM at over $90, still at a P/E of 19. Is this still 'expensive', bearing in mind what we've seen over the last 3 to 4 years ? The market has been prepared to provide buying support for PM at a P/E of between 18 and 19 as long as they show an increase in earnings. They've been doing that for quite a few years now .... do we believe it will be that different going forward ? Like yourself, I'll bow to the majority vote .....