Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

If You're Not Buying Stocks Yet, You Need to See These Charts

Stock-Markets / Stock Market Valuations May 11, 2013 - 11:43 AM GMT

By: DailyWealth

Stock-Markets

Dr. David Eifrig writes: Last month, I ran through a set of figures that cover a huge concern for retirees.

It's vitally important information that affects nearly every dollar you have invested... yet most of what you hear about this idea is "bunk."

I'm talking about the concern that the U.S. economy is "running off the rails"... that we are in a recession... or worse, a depression.


The figures I presented showed that our economy was growing slowly, without inviting a sharp increase in inflation. Today, nothing much has changed... No surprises, just steady progress. It's the sort of environment that leads to gains in your stock portfolio.

But how much money should you have in stocks? And after their big rise (up 14% so far this year), are they too expensive to buy?

Below is the chart that provides our answer. It displays the historical price-to-earnings (P/E) ratio of the S&P 500. The P/E ratio is one of the time-tested ways to gauge stock market valuations. You'll note that the S&P 500's current P/E of around 16 is near its historical average of 16-17 times.


Remember... we're in the midst of an economic recovery with historically low interest rates. In that environment, stocks (especially ones returning cash to shareholders) should command a significant premium over their historical valuations.

Given that... stock valuations are on the cheap side.

So if the market is hitting new highs but it's not overvalued on a P/E ratio... that tells me corporate earnings (the "E" in the P/E ratio) – the best possible indicator of the economy – are reaching new highs.

Corporate earnings started to rise in early 2010, when the potential for the Great Recession to turn into the Second Great Depression still loomed. Pessimistic commentators quickly credited this earnings growth to cost-cutting – that's not true growth. And they declared these earnings were unsustainable.

That's not the case anymore.

As you can see in the chart below, sales are growing steadily again, lending more proof to the sustainability of this recovery.


The profit margins for companies in the S&P 500 stock index have reached around 13.5%. That's about as high as they get. Companies are operating at peak efficiency, suggesting that creative accounting won't increase earnings figures from here... only true, organic growth will.

The market still has plenty of room to run. We aren't seeing as many values as we did two years ago, when stocks were priced at 12 times earnings and every fundamentally sound business looked cheap. But we still want to own stocks.

Conservative investors just want to be sure to own only the best names with the best prospects. This means world-class U.S. blue chips, like Wells Fargo, Microsoft, and Intel.

Despite all the negative stories you read in the mainstream press, the U.S. economy is gradually improving... stocks are still relatively good values... and earnings are growing. That's why it still makes sense to ignore the doomsayers and stay long U.S. stocks.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

P.S. If you're ready to look at the numbers – and ignore conventional investing wisdom – you might be interested in a report I just put together. This isn't for folks who think becoming wealthy is a "get-rich-quick scheme." And it's not for folks who blindly follow the advice of a broker or money manager. But if you'd like to hear about unique ways to generate hundreds, even thousands, of dollars a month in extra income, click here.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2013 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules