Not a subscriber? Click here to learn
more.
|
| Home | About Us | Resources | Archive | Free Reports | Market Window |
The Biggest Risk in Stocks... It's NOT What You ThinkBy
Friday, August 16, 2013
"Stocks are up over 100% since 2009. They're way too expensive now... You shouldn't buy."
I hear this all the time. Frankly, I've heard it so much, I'm tired of hearing it... It's just so plain wrong!
It's true that stocks are up over 100% since 2009. But that doesn't mean stocks are too expensive...
The truth is, STOCKS ARE CHEAP.
The largest companies in America – the best companies on the planet – are so cheap compared to history... and compared to anything else you could do with your money today... it's just ridiculous.
For some perspective... In 1972, the top companies in America traded at 41.9 times earnings. (This was the price-to-earnings ratio of the "Nifty Fifty" stocks, which included companies like Coke, Disney, and IBM.) Now that's expensive.
Today, based on 2013 earnings estimates, the top companies in America trade at a price-to-earnings ratio of just 11.8. These are the best companies on the planet. And they're dirt-cheap!
Take a look for yourself:
The great value doesn't just stop here... When you consider "relative" value, stocks can't be beat. You see, interest rates are much lower today than they were in 1972.
Back then, for example, you could earn over 6% on government bonds – you had an alternative for your money.
But today, government bonds pay just 2.75% interest. If you need a higher return on your money, stocks (with an earnings yield of around 8%) are the best game in town.
I recognize that stock prices can go down... that I could be wrong here. But I'm not afraid to pull the trigger.
When you have the chance to own the world's greatest companies at these incredible values – without much competition from bonds – the greater risk today is NOT owning stocks.
Are there problems in the U.S.? Of course. You can come up with hundreds of excuses NOT to buy stocks...
Saying "stocks are overpriced" is one of the most popular excuses. But it's not good enough. It's simply not true.
Quit making excuses. BUY STOCKS.
Good investing,
Steve
Further Reading:
If you're looking for great values, resource stocks are also cheap right now. Last month, Matt Badiali revealed 10 major commodity producers selling at lower price-to-earnings ratios now than they were in 2009. Learn more right here: These Resource Stocks Are Below "End of the World" Prices.
Some of America's top companies have a huge "tailwind" behind them... When a blue-chip company raises its dividends by double digits every year, Dan Ferris explains, you can average double-digit returns over the long term. "And you'll do it without the risks you take on with almost every other strategy." Read more here: A Hidden Source of Double-Digit Annual Returns.
Market NotesEVEN SHIPPING STOCKS ARE HITTING NEW HIGHS In yesterday's Market Notes, we cited strength in diesel-engine giant Cummins as a reason to say things can't be all that bad for the global economy. Shipping stocks lead us to the same conclusion...
Shipping stocks rise and fall with the health of the global economy. An easy way to monitor the global shipping business is with the Guggenheim Shipping Fund (SEA). This fund's constituents haul oil, coal, grain, natural gas, and manufactured goods across the world's oceans. Danish shipping giant Maersk, which is the world's largest container-ship operator, is the fund's largest holding.
For the past few years, shipping stocks have been in the dumpster. The industry has struggled with an oversupply of ships and a sluggish global economy. Because of this, SEA fell from its 2010 high of $27 per share to its 2011 low of $13 per share.
But as you can see from the chart below, SEA has recovered off its lows and rebounded. Shares have climbed from $13 to $18. Just this week, shares broke out to a multiyear high. This upside breakout is more reason to say the global economy "can't be all that bad."
 |
In The Daily Crux
Recent Articles
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
