Value is What You Get

I really, really don’t want to talk about the euro today. And I think I’ve made myself quite clear about oil prices. (In fact, I just recommended another top-notch Bakken oil producer to Energy World Profits readers last Thursday that should be good for a quick 30% gain as well as outstanding long-term growth. You can learn more HERE.)   

Today, there’s something else on my mind.   

As usual, there’s a wide range of debate over whether stocks are overpriced or not. The Wall Street Journal says that the price-to-earnings ratio for the S&P 500 is currently 19. Based on forward earnings estimates, it’s 14. Clearly, a p/e of 19 is above the historical average of approximately 16. And the forward p/e of 14 is below the historic average. It’s likely that the truth lies somewhere in the middle. I have no problem stating that stocks appear more or less fairly valued at the moment.   

I also see the risks to global economic growth as fairly evenly balanced. Certainly we’ve become quite familiar with the threat to growth over the past couple of weeks, as the currency-that-shall-remain-nameless has dropped precipitously.   

But the trajectory of U.S. corporate profit growth seems intact, and there is still upside for hiring.   

Two weeks ago, one of the bluest of America’s blue chip companies made one of the boldest predictions I’ve seen in a while. The company said, quite confidently, that it would double earnings-pre-share in 4 years.  

Now, even though this company has been incredibly resilient during recent market weakness, it continues to trade with a current p/e of 12, and a forward p/e of 10.   

This company has beaten earnings estimates in each of the last 3 quarters. And analysts routinely agree that it has made all the right moves lately. In fact, just today it announced an acquisition that will boost its profit margins and give it more exposure in the electronic transaction space. Often called e-commerce, processing these transactions is a $5 billion a year business that’s growing 10% a year.   

I thought this stock was one of the cheapest on the market when I recommended it to my Top Stock Insights readers at $118 a share in August of 2009.   

Today, at $125 a share, I’m convinced it’s one of the surest bets to double your money in 5 years available.   

The company? The bluest of the blue chips, Big Blue, otherwise known as IBM (NYSE:IBM).     

I sincerely wish I knew why investors have responded to a full year of good news from IBM with a collective yawn. But I’m now taking a “Warren Buffett” stance on the stock: I may never sell it.   

When IBM came out on May 12 and said it would earn $20 a share in 2015, up from $11.27 this year, the stock popped a little. But after the recent declines, it’s right back to where it was – around $125 a share.   

Even though we’ve achieved only minimal gains on IBM shares in Top Stock Insights, I’m not worried about the stock in the least. Because as Warren Buffett said, “Price is what you pay, value is what you get”.   

I’m very confident in the value that IBM represents. At some point, investors will wake up to this reality. And that’s fine. I can wait for IBM to trade with the higher multiple it deserves. And even if it doesn’t ever achieve a higher multiple, it’s 12% annual earnings growth rate suggests it will double in value in 5 years.   

I think I can wait that long. Can you?   

OK, I said wasn’t going to mention the euro today. But I have to remind you of the special video investment conference I’ve scheduled for Thursday June 4, at 6 pm. It’s called Profiting from Crisis in Europe .  

Investors must be ready to act when volatility dominates the stock market. During this special Internet event, Profiting from Crisis in Europe, we’ll discuss how you can use the volatility we’re seeing right now to position yourself for market-beating gains in the years to come.   

Profiting from Crisis in Europe is free to attend, and you can sign up for this critical event HERE.