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- Stocks: Cheapest Since 1990
- GDP is Coming
- 43% — 187% Gains
I don’t have a problem with
investors who are bearish on the stock market and the U.S. economy.
After all, official unemployment is near 10%. U6 unemployment, which includes
those who are underemployed or have simply given up looking for work, is
significantly higher.
The housing market is likely
to only gradually improve over the next couple of years. There’s record
government debt here in the U.S.
and in many other countries.
But the bears need to take
another look before they add high stock valuations to the laundry list of
downside catalysts. Because the numbers say stocks are as cheap as they’ve been
since 1990.
Sure, it’s
easy to look at the 79% move by the S&P 500 and think stocks must be
expensive.
But so far, 1st Quarter
earnings have beaten estimates by an average of 22%, according to Bloomberg.
80% of reporting companies have beaten expectations.
Analysts have raised forward
earnings estimates for S&P 500 companies by 9.3% in April. The index has
responded with a 3% move in April.
Analysts say that S&P
500 companies will earn $85.96 a share in 2011. The record for per share
earnings is $89.93, set in 2007. The S&P 500 was 20% higher then. The
current P/E for the S&P 500 is 14.
Perhaps more interesting is
that even though analysts are raising forward earnings estimates, they aren’t
raising their ratings on stocks. Bloomberg goes on to point out that only 30%
of U.S.
stocks have a "buy" rating. I assume that means the rest are
"holds" or "sells."
When analysts change their
rating on a stock, it’s usually headline news. But when estimates change,
there’s usually not much fanfare.
And that may help explain
why some investors remain skeptical of the stock market rally.
Of course,
corporate earnings will grow until they don’t. And the stock market tends to
have a nasty correction when analysts are suddenly forced to start lowering
earnings estimates.
There are usually signs when
this starts to happen. But so far, no analysts are coming out and questioning
whether earnings estimates are too high. In fact, it’s pretty clear that
corporate earning power continues to surprise analysts. And they continue to
play catch up.
It’s unlikely that earnings
will all of a sudden reverse course anyway. We should at least see a quarter or
two where earnings are pretty much in line with expectations. Until that
happens, a bullish bias towards stocks is appropriate.
The Fed is doing its part to
support earnings and valuations. It pledged to keep interest rates at
"…exceptionally low levels…for an extended period…" at yesterday’s
FOMC meeting.
Most economists and analysts
don’t think rates will rise until the first half of 2011.
There’s a big number coming on
Friday. We’ll find out just how fast the U.S. economy grew in the 1st
Quarter at 8:30 AM.
Retail sales have been
better than expected. So has consumer spending. Inventories improved and so did
corporate spending on new equipment.
Economists now expect that
the economy grew at 3.3% clip, after the 4th Quarter’s 5.6% growth. We’ll find
out soon.
In February, TradeMaster
Daily Stock Alerts’ Jason Cimpl released a Special Opportunity Report featuring
5 biotech stocks. One of those made a spectacular 187% jump on April 13. 2
other made moves of 43% and 54%.
At the beginning of March,
another Special Opportunity Report featuring 3
commercial real estate stocks that were breaking higher. One of those stocks is
up 50% winner and another is up close to 100% since.
One of Jason Cimpl’s
readers, Chuck K., wrote the other day to say:
Thanks for a great calls.
CPE (100%)& MIPI (stopped out at $4.29—187%)
Now Jason is getting ready
to release a new Special Opportunity Report featuring oil and gas stocks. I
expect there will once again be some excellent gains for his readers. But this
time, why not join in on those gains? You can learn more about TradeMaster
Daily Stock Alerts HERE.
Until Tomorrow,
Ian Wyatt
Editor
Daily Profit