# Stocks Look Cheap in Here

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Last modified: 2021-08-17

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By Paul Ebeling · 2021-08-17
Tags: Shayne Heffernan on Investments, Stocks, stocks, earnings, valuations, Paul Ebeling, Knightsbridge Insights
Signed: no (published before platform launch).
Nothing in this article is investment advice.

#stocks #earnings #valuations

$SPY

"*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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