Uncovering Opportunities in a Tumultuous Market
by Christine Benz
The current market environment is a head-scratcher on a number of fronts.
Despite a little spackle here and there, Europe still doesn’t appear to be on the mend, and the specter of slowing growth looms large across the globe.
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Perhaps even more worrisome, given that low valuations are a better predictor of market performance than growth in GDP (gross domestic product), is that stocks in aggregate don’t appear to be a screaming buy right now. The price-earnings ratio for the S&P 500 index was a not-unreasonable 16 as of early August 2012, putting it in line with historical averages. But the so-called Shiller price-earnings ratio, which attempts to smooth out effects of business cycles, is 22. That’s a bit worrisome when you consider that the long-term mean of the Shiller price-earnings ratio is 17. U.S. stocks have gained about 14% on an annualized basis over the past three years, so it’s probably not surprising that stocks look fairly valued, if not downright overvalued, right now.
Yet, as in nearly every market environment, opportunities lurk for investors who are willing to roll up their sleeves and look for them. While a handful of market segments look notably expensive right now—dividend-rich areas like real estate and utilities seem particularly frothy—a number of market segments appear to be trading cheaply, based on Morningstar analysts’ bottom-up research. That not only presents opportunities for individual stock investors, but also translates into investment ideas for mutual fund and exchange-traded fund investors as well.
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Discussion
A very good analysis of the current market situation with specific recommendations for each analytical point of view.
posted 6 months ago by Edward Kaminski from Indiana
Morningstar is very conservative. You may not make very much with their 5 star stocks, but you will not lose very much either. Long live CAPM and MPT.
posted 6 months ago by James Jennings from Virginia
Is there any foreign withholding tax on dividends paid by France Telecom SA ADR (FTE) and NTT DoCoMo ,Inc ADR (DCM)?
This is a very interesting article and the discount-to-fair value and moat concepts make a lot of sense.
posted 6 months ago by John Thumann from Arizona
Helpful analysis of the market situation and the comparisons seem good.
posted 6 months ago by Betty Anderson from Oregon
What about bonds? I do not go to meetings or read your trash anymore because all it is is stocks and ETF (same thing). I am 79 aqnd need safety not stocks with losses I have no time to make up. You have abandoned your longtime members.
posted 6 months ago by Graham Johnson from California
Well done by Ms. Benz who is obviously someone who does her homework. However, it is nearly impossible for anyone to give investment advice until we get through the November elections. In the interim I'd keep my powder dry because no one can predict the market reaction. I'd agree that the pure yield play is a crowded trade without much upside... buy high and enjoy the dividends I guess.
posted 5 months ago by Timothy Gorham from Rhode Island
Buy NRFHF around 370,hold for 18to 24 months sell around 450. John H.McDonald 404-606-0646
posted 5 months ago by John Mcdonald from Georgia
