The Truth About Stocks Today
Companies / Stock Market Valuations Aug 17, 2013 - 10:36 AM GMTBy: DailyWealth
Steve Sjuggerud writes: "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 12 Largest Stocks in the U.S. |
||
| Market Cap | Forward P/E |
|
Apple |
$453B |
11.8 |
ExxonMobil |
$396B |
11.1 |
Google |
$290B |
17.0 |
Berkshire |
$287B |
17.5 |
Microsoft |
$269B |
10.4 |
Johnson & Johnson |
$256B |
15.3 |
Wal-Mart |
$250B |
12.9 |
GE |
$245B |
13.2 |
Chevron |
$236B |
9.9 |
Wells Fargo |
$229B |
10.6 |
Procter & Gamble |
$223B |
17.2 |
IBM |
$205B |
10.2 |
JPMorgan |
$204B |
8.6 |
| Median | 11.8 |
|
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
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.
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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.
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