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

To: Lazarus who wrote (57841)	8/20/2016 11:35:06 AM
From: E_K_S	3 Recommendations Recommended By Jurgis Bekepuris Lazarus sjemmeri Read Replies (1) \| Respond to of 78700

I agree w/ you and still do not think the market (as represented by the S&P500) is overvalued as many of the pundits argue. First the forward PE is around 17.36 (and falling -15% YoY)). ( current S&P 500 PE @ $25.25 is at the top end of the value range). Mean: is 15.6 w/ median at 14.63. Therefore, reversion to the historical mean would indicate a 'possible' 8% correction from the Forward PE estimates. A normal correction in a bull market. However S&P 500 Book Values continue to grow. Many large cap companies have been buying back shares that can affect their stated price/book value measurement. Companies that regularly reduce their share count through repurchases may appear overvalued on a book value basis. However buybacks can be a boost to corporate EPS. Notice that even w/ these buybacks, the Price/Book Values has increased back to 2002 levels but well below that of the Dot.com bubble level. (69% lower!) This is evident by the rising S&P 500 Book Value Per Share, now at the highest level in the market history. The S&P 500 BV in 2000 during the peak of the dotcom bubble was $300.00/share. Now 16 years latter it is $752.77/share or 251% higher! The mean $BV/share value is $509/share or 68% higher than the mean value. The annual compounded growth rate for the S&P500 BV per share is 5.92%. The S&P 500 values are/were impacted by the very low interest rates due to the FED's QE program that started in 2007/2008 period. As a result the S&P 500 Earnings Yield @ 3.96% is somewhat distorted ( Current S&P 500 Earnings Yield: 3.96%). The historical Mean value (1880-2010) is 6.83%. If/when the Fed normalizes interest rates, market prices will fall. It will impact those companies more that carry a lot of debt and have not deleveraged during this period of artificially low interest rates. You want to exit this low interest rate environment owning companies w/ little to no debt. Even-though earlier this week, the market(s) (as represented by all three indexes) reached/exceeded their previous levels in 1999, it is really different this time. Just look at the S&P 500 Book Value Per Share. Everything comes down to earnings which continues to grow. From 1992 to date the compounded growth rate of the S&P 500 earnings was 4.76%. For 2016 the Current 12 month EPS: $87.49 Note: the earnings growth rate in current dollars is flat well below the mean rate of 25%. Therefore, any reversion to that mean would be much higher from the current levels. That's why I remain Bullish and continue to hunt for undiscovered pockets of value in the market, specifically in the small caps area. EKS