Barron's out with a headline that looks interesting "TIME TO BUY" with the logical reasons being stocks are cheap and oversold. Keep in mind that the SPX hit a low of about 770 in October of 2002 and a high of 1330 in May of 2006 so it may seem like less, but we are only 90 points (7%) off the May highs.
Jason Trennert, the always bullish TV guy/ strategist from ISI says "the downside is limited because price earnings multiples are coming down, while interest rates generally are low. I tell our hedge fund managers clients that, if a few things go right, the market could explode because there has been so much P/E multiple contraction for so long."
Note to Jason, short term rates are low, but they have increased several hundred percent from their 1% lows.
According to Barron's, the SP 500 multiple is now where it stood four years ago when the index traded around 850, which was a great buying opportunity. They go on to say that the only time in the last 15 years that the SP 500 was lower than it is now was at the end of 1994, when it was 12 which was a great time to buy.
My question for the folks at Barron's is the 850 buy in 2002 came after the SP 500 hit 1500+ in the year 2000 and the index was almost cut in half as it hit a low under 800. In addition, we were coming off a slowing economy and the economy has now been growing since. My point is that if growth is slowing, P/E's will probably continue to decline as folks refuse to pay up for slowing growth.
My guess is that the markets have sold off over the last two months because of geopolitics, rude crude, higher interest rates, slowing housing markets, and probably the most important, slowing overall growth. There is also an old rule that when oil soars in price, a recession follows. Now the rule maybe different this time as oil is less important to our economy but I will leave it out there for now.
Anyhow, here are the favorites according to Barron's:
CVX P/E 8.1 Div 3.2%
CSCO P/E 14.9 Div ZERO
DOW P/E 4.6 Div 4.1%
GE P/E 16.4 Div 3.1%
HD P/E 11.1 Div 1.8%
LEH P/E 9.5 Div .8%
Nestle P/E 16.5 Div 1.7%
NWS P/E 18 Div .6%
VOD P/E 10.3 Div 5.3%
WMT P/E 15.1 Div 1.5%
My take is that if you agree with the thesis, buy the SPY or a similar index, it will save on commissions and record keeping and the results will be the same or better.
And congrats to the Tour Winner Floyd Landis, who would have thought that an American would win the tour the year after Lance retired?