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are stocks still overvalued?

  • Thread starter Thread starter OS
  • Start date Start date
OS

OS

Lifer
f*ck this is the third time I typed all this sh*t out. Stupid server.

Anyways, I read an article a while back that suggested a healthy stock had a P/E ratio of about 15. I was browsing a couple big names and it's consistently like double. What gives?
 
Originally posted by: Mill
What companies?
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cisco, microsoft, GE, walmart, intel etc. The only thing I can think of is the p/e is being calculated differently between the article and actual listings.
 
The market is about to rise really well, so I say no. RE: the companies you listed: no comment/I have no clue.
 
Stocks in general? No. All the big cap, high sex appeal names (like the ones you listed), yes.

But there's still plenty of value out there to be had, you just need to look away from the obvious. "Cisco, microsoft, GE, walmart, intel etc." aren't going to cut it if you're talking value. You have to look for reasonably priced names like AC Moore (ACMR), Bunge (BG), CP Ships (TEU), Curtiss-Wright (CW), MBIA (MBI), and Headwaters (HDWR). Never heard of them? Good. Because they're great companies no one has ever heard of, you can get their stock at great values.
 
For a good retirement investment (that is, very long term) it's hard to go wrong with an S&P 500 index fund (vanguard VFINX for example).

Some stocks in the 500 are overvalued, some are undervalued, some are just right, but overall you'll get nice growth as the market itself grows.
 
Originally posted by: glenn1
Stocks in general? No. All the big cap, high sex appeal names (like the ones you listed), yes.

But there's still plenty of value out there to be had, you just need to look away from the obvious. "Cisco, microsoft, GE, walmart, intel etc." aren't going to cut it if you're talking value. You have to look for reasonably priced names like AC Moore (ACMR), Bunge (BG), CP Ships (TEU), Curtiss-Wright (CW), MBIA (MBI), and Headwaters (HDWR). Never heard of them? Good. Because they're great companies no one has ever heard of, you can get their stock at great values.
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Thanks for your feedback. 🙂

I am considering an index fund, but they run the related problem where they are composed mainly of the big names which I worry are overpriced.
 
Originally posted by: OS
f*ck this is the third time I typed all this sh*t out. Stupid server.

Anyways, I read an article a while back that suggested a healthy stock had a P/E ratio of about 15. I was browsing a couple big names and it's consistently like double. What gives?
Click to expand...

Yes, the stock market as a whole is grossly overvalued right now. As you said while the historical P/E ratio of the S&P 500 is roughly 15, it is currently around 19. This does not mean it will not continue running up, but from a historical standpoint, the odds are not in your favor. In my opinion, we are due for a major correction. Our entire economy is being supported by artificially low interest rates and loose credit, leading to enormous asset bubbles in stocks and real estate. We are on a collision course with wide-scale economic depression. Of course that is just my opinion. 🙂

That does not mean there are not undervalued stocks out there. Even in the worst stock bubbles, there are still values to be found. Searching for stocks with low P/E ratios is a good start.
 
Originally posted by: OS
Originally posted by: glenn1
Stocks in general? No. All the big cap, high sex appeal names (like the ones you listed), yes.

But there's still plenty of value out there to be had, you just need to look away from the obvious. "Cisco, microsoft, GE, walmart, intel etc." aren't going to cut it if you're talking value. You have to look for reasonably priced names like AC Moore (ACMR), Bunge (BG), CP Ships (TEU), Curtiss-Wright (CW), MBIA (MBI), and Headwaters (HDWR). Never heard of them? Good. Because they're great companies no one has ever heard of, you can get their stock at great values.
Click to expand...

Thanks for your feedback. 🙂

I am considering an index fund, but they run the related problem where they are composed mainly of the big names which I worry are overpriced.
Click to expand...

There are a variety of different market indices and funds out there. There are total market indices like the Wilshire 5000 try to encompass all companies on the market, large and small cap alike. Also there are small cap indices like the Russell 2000 that try to represent just the small cap companies.
 
Perhaps they are overvalued, who knows. But remember P/E alone will not totally give you the value of a stock. PEG ratio is important too [aka Price divided by estimated Earnings, and that ratio divided by expected future growth rate]

Look at it this way, 2 stocks with a P/E earnings ratio of 20: company X &Y. What if company X expects to earn double its earnings for next year? And company Y expects its earning to drop 50%? That P/E ratio of company X is suddenly low; it's not inherently bad b/c its a ratio of 20.

The P/E ratio needs to be looked at in relation to other factors.
 
The P/E ratio also seems to differ in different industries. Tech stocks seem to generally have a higher p/e ratio than some of the blue chips. (Assuming they are making a profit, of course. 🙂)
 
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