Use discretion wrt to consumer discretionary stocks. Why? Because these stocks have moved up a lot. They trade at 17.5 times next years earnings. The 10 yr average bring 16.3. Or a premium of 7.5% over the 10 yr average. And the equivalent ratio for S&P 500? 14.2.
For this year this group up 25% while s&p 500;up 17.5%.
Guess where the consumer cconfidence index is. At 81.4. Near Multi year high. And the value in 2009 March? 25. So a nice contrarian indicator. Just buy an etc for this sector when sentiment nosedives.
Source for numbers July 17 wsj. Opinion - yours truly. The article is still positive about consumer stocks.
This post is for those with a strong constitution. Keep the women and children away. Take a deep breath. And read on.
Securatization. Banks. And throw in that model sector - Airlines. Don't say you weren't warned.
French banks have to match long term loans with long term funding sources. US investors have slowed buying debt issue by Les Banks. So French banks are securatizing the loans and selling to investors. Market is huge. $4.5 trillion of new jets will be needed thru 2031.
Youall can rest comfortable. Apparently "better risk assessment" should enable pitfalls.
The US oil majors as we discussed have been cutting back on Capex. And buying back shares. Investors have rewarded them. But is such quick fix harmful in the long term?
Arch Coal is #2 us producer of coal. Its mkt cap has dropped by 10 x from 10 to 1 billion - article don't say in what time frame). In 2023 it has underperformed snp500 by 63%. Since 2011 Mr. Arch has posted losses every quarter. In 2014 its expel Ted to lose 1$/share. Why?
Nat gas is abundant. Its price had dipped to 2$/millions Btu. Destroying 35 million tons demand. at 4$ it would only curtail 5 million tons. Now its at 3.46$. So getting better.
So coal prices have stabilized. Arch has sold assets to shrink balance sheet.
So, readers, is this Coal a diamond in the rough? Stay tuned for a new thread that examines such opportunities. While doing an analysis of financial statements.
Price to rent ratios in the housing market is a proxy for P/E ratio for equitiies. Higher this ratio more expensive the house. In Q4 2011. the ratio was 19.9. Lowest since 1987. Around late 2011, REITS and private equity funds have picked up homes at low prices. Now real estate no longer cheap. Bidding wars are back again. The ratio now stands at 22.8. The historic average is 20.6.
So if you are a value investor, stay away. Returns expected to be sub par. In any event home price appreciation is only 1.3% over inflation historically.
Of course if you are looking for a home to stay rates still low, though up from recent lows.
Source Sat wsj.
PS. Our young staff member, Mr. Annadorai, wondered why the ratio in late 2011 was only 3% lower than historic average. And the article refers to late 2011 prices as cheapest since 1987. The only way for this to be consistent is if post 1987 prices remained very expensive.
When gold kept skyrocketting, hedging was a dirty word. Now that gold ids off ~25% from the highs, hedging has a nice ring to it. Gold miners are ensuring they get to sell at a preset price. But this may not be the best move. Since it caps returns. Though reducing risk.
So why have the miners stock performance mirrored an Indian in an Olympic 100m sprint? Cost. It costs $1323 per ounce to mine gold. The gold price? Around the same!
Another consequence of hedging is it sends pessimistic message. Which leads to lower prices. Self fulfilling.
Takeaway? Want ssome gold mining stocks? We will be happy to sell them yo you.
Regular readers of this and our sister franchise threads know that we have been favoring European oil majors over their US counterparts on a valuation basis. Here is one more reason to favor those stocks.
The big boys shell exxon rosneft petrolo brasileiro hold 50-60 billion barrels of oil equiv(BOE).
Next chevron total bl. 30-40 hoe.
then Eni statoil and cop. 25 boe.
Some are kings at home. Western majors diversified across globe. With oil demand shifting from west to east having global footprint helps.
TOTAL while not as geographically diverse, has a diverse resource base. One more plus point.
Article ends by stating COP should split its north america assets from international. To get higher valuation! Apparently, "resourcefulness in how they get packaged and sold to investors is as important" as Resources!
And we thought it is all about valuation cash flow and balance sheet!
Deere caught in the headlights. This farm eqmt co has benefitted from several factors: crop prices increasing, tax breaks for equipment. Now the same forces are reversing. Crop prices going down. Govt subsidies bring reduced by 90%. Look out below. Did we say Deere is a cyclical stock? We sure hope so.
Normally I do not care for Mark Hulberts Sat column in the WSJ. But todsys column was useful.
The P to E for the market can be confuding. The E is either for past 12 months or estimatedfor next 12 months. The latter significantly higher than former because
1) earning increase year over yesr
2) forward earnings based on optg earnings, while last 12 mo based on net Inc. Optg > net Inc.
3) Analysts are always overoptimidtic abt earnings.
The average P/E since 1871 is 14.5 based on last 12 months' earnings and 11 based on next 12 mo. Estimate. The current nos are 18.2 and 13.6 respectively. Both 25% higher than their counterparts. So mkt 25% overvalued.
Not so fast, says our Annadorai. The 142 yr average P/ E is probably skewed to a lower number, since P/E in the 1871-1980 time frame was much lower compared to the 1980-2013 time frame. Assuming it was about 10% lower, the historical values would be 16 and 12.1 resp. That makes the mkt 12% overvalued. In line with our estimate in the "Can this market be MORAL" thread.
As always, Mr. Dorai has been asked to just do his job.
The Wall Street hoodwinking machine is at it again. With invesstors hungry for yield, alternative investment vehicles have sprung up like weeds. Their charter is to zig when the market zags. Protect investors from losses.
Problem? They charge high fees. In the last 10 yrs they outperformed mktconly during the 2009 collapse. Fixed income alternate vehicles didn't do much better. In tactful they underorrformed bond mkt in 2009.
Some seedy firms are chaarging 7% commission fees for their products.
As we like to repeat often, our readers wont fall for such gimmicks. Give yourselves a hand, readers.
What happened to nuggets? Ran out of oil / gas? :D
Oil / gas exploration megafirms have been beaten down relative to the market. Over supply due to shale oil gas. Cant export due to rules. Increased supply. Lower demand. This has aided refiners. Who made hay.
Has the pendulum swung too far? Is that light we see at the end of the proverbial tunnel?