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Stocks Look Cheap in Here


#stocks #earnings #valuations


Corporate profits have risen so spectacularly, that when I analyze the valuations Vs the actual earnings reported later, stocks were about 20% cheaper than analysts thought when investors began piling into the S&P 500 Index in on 23 March 2020“– Paul Ebeling

That day was 1 of the greatest buying opportunities in modern times. And all the gainers that followed that Spring were moves by investors to bring valuations to where they should be.

Now, as the S&P 500 sets record after record, and Monday closed with a 100% gainer from that March 2020.

So, my analysis serves as a reminder to the naysayers, who once again insist the stock market is forming a bubble that is about to burst. At 21X forecast earnings, the S&P 500 sits near the highest multiple since the dot-com era. But my work shows that their profit estimates are too low again.

S&P 500 companies have beaten estimates by at least 15% for 5 Quarters in a row, driving their combined annual income to $183.91 a share by June.

Based on reported earnings, the benchmark index’s VirusCasedemic bottom looks like a better deal, trading at 15.4X future profits in April 2020. Going by analyst estimates back then, the multiple was 18.7. The realized future P/E was as low as 12 based on the price at the March 23 bottom.

If my work is an guide the market is siding with the Bullish outlook. Using historic P/Es as a rough indication of what kind of future earnings are embedded, a return to the 5-yr average multiple of 18.2 would mean the market now anticipates companies to earn $244/share in the next yr. And that equity strategist at Morgan Stanley, analyst calls for profits to reach $216/share in Y 2022 is too low.

Have a prosperous day, Keep the Faith!

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Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.