Remarkable spread in stock valuations at present

[Running_Man]

I feel actually sorry for people that think in a 1/3 of a second a researched idea of value is erased, yet feel a passive approach to world wide investing in a markets where accounting standards are minimal and bribery is a way of life will assure their retirement by force of statistical science.


https://www.forbes.com/sites/jwebb/2.../#3718fa513d03

[Spock]

Quote:

Originally Posted by Running_Man I feel actually sorry for people that think in a 1/3 of a second a researched idea of value is erased, yet feel a passive approach to world wide investing in a markets where accounting standards are minimal and bribery is a way of life will assure their retirement by force of statistical science. https://www.forbes.com/sites/jwebb/2.../#3718fa513d03

I wasn't saying the 1/3 second advantaged HFT eliminates the value of a researched investment (although front running the trade shaves off of both ends). I was saying the percentage of researched trades to make an efficient market is reduced by the sheer volume of HFT (and blind algo+passive investing).

[gamboolman]

Well - sounds like speculation and Market Timing to me.....
Seven Come Eleven
Don't see that Devil

[NW-Bound]

Quote:

Originally Posted by gstillson I am interested in finding more of these companies and compiling a list to be used as potential candidates for stock picking if we get a continuation of this supposed valuation spread. So far we have discussed T, F, CVX and GILD low PE isn't everything though, you want to see a decent market for the product and a manageable debt load (along with good cash flow). You can easily get caught up in things like Seadrill, which was paying something like a 12% dividend before dropping from $40 to $0.19...

In that vein, I am throwing out some companies here, not necessarily for investment purposes but could be for a discussion on why the P/E disparity exists.

I show both the trailing P/E and forward P/E for you to see what the analysts are projecting for the future. Note that trailing P/Es are listed first, then forward P/Es.

Tech sector:

Company Trailing Forward
Apple 7.51 10.67
Intel 10.86 10.23
Micron 2.63 4.48
Skyworks 10.61 8.24
Applied Material 7.51 7.32


Heavy machinery:

Caterpillar 12.26 9.83
Cummins 9.89 8.54


Steel and Chemical:

Nucor 8.61 8.17
Lyondell Basel 6.38 7.34
Eastman 8.68 7.89


Drug and Biotech sectors

Allergan N/A 8.11
Mylan 22.03 5.33
Celgene 11.21 6.00


Paper, Packaging

International Paper 10.38 7.14
Westrock 14.05 7.54


Automobile:

BorgWarner 8.96 7.44
Delphi 4.31 4.22


And here are the high-flying stocks

Amazon 90.97 55.33
Google 25.70 22.19
Facebook 17.98 17.88
Netflix 88.49 61.45
Visa 33.21 21.11
Eli Lilly 50.22 19.27


What is most interesting is the P/E of the utility sector, which is universally taken to be a safe haven in a recession.

Duke 21.75 17.32
Southern 20.68 14.55
Pacific NW 18.59 17.66
Edison 3.48 17.68
Dominion 21.05 17.14

[audreyh1]

Quote:

Originally Posted by RetireSoon Great examples of companies that are "historically" cheap (and with great dividend-to-cost percentages).. - T (7.25%+ divvy; PE of 5, fwd PE of 7.95 - SERIOUSLY?) - F (7.6% divvy; PE of 5.15, forward PE of 5.63 - ditto) - CVX (4.1% divvy; more reasonable PE but under-valued by ~20% per M*) ..the list goes on. You can buy some very good companies for CHEAP nowadays..just avoid the high flying FANG stocks. Totally agree on the "bifurcation" currently in the market..

Actually the FAANG stocks have been brutally beaten down over the past month. Down more than the rest of the market.

[audreyh1]

Quote:

Originally Posted by bmcgonig The previously mentioned time like pre 2000 when all value stocks were murdered and dot coms were bid thru the roof is enough of an example that the markets are not always efficient and that value investors were indeed smarter than the collective wisdom of those in the dot coms. I remember BRK.A falling by almost half and Buffett telling anyone who wanted to sell, to sell to him. There was nothing efficient about that market imo.

Exactly. There have been many, many times when relative stock valuations have made no sense being driven by various manias. I never consider equity markets efficient in the short or medium term. There are huge divergences between stocks and bonds, each predicting a completely different economic outlook.

[COcheesehead]

Quote:

Originally Posted by CyclingInvestor I remember the REIT mispricing of 2000 well - it was the single biggest reason I was able to retire early. My JNJ, PG, ADP, EMR, AFL etc had PEs of 30-50 or more, while top quality REITs I moved into like Chelsea, Simon, Prologis, Avalon Bay etc had P/FFOs of 7-10, paying 6-10% dividends while growing 6-15% annually. Amazing.

Same thing is happening now. I own some REITs with PE’s in the 4-5 range, dividends in the 6-12% range.

[target2019]

Quote:

Originally Posted by NW-Bound Duke 21.75 17.32 Southern 20.68 14.55 Pacific NW 18.59 17.66 Edison 3.48 17.68 Dominion 21.05 17.14

On Yahoo Finance, I see this:
SO PE Ratio (TTM) 18.34
DUK PE Ratio (TTM) 20.97
ED PE Ratio (TTM) 15.31

These TTMs are higher than your data. Now what about the forward estimates?

[NW-Bound]

Quote:

Originally Posted by NW-Bound Duke 21.75 17.32 Southern 20.68 14.55 Pacific NW 18.59 17.66 Edison 3.48 17.68 Dominion 21.05 17.14

Quote:

Originally Posted by target2019 On Yahoo Finance, I see this: SO PE Ratio (TTM) 18.34 DUK PE Ratio (TTM) 20.97 ED PE Ratio (TTM) 15.31 These TTMs are higher than your data. Now what about the forward estimates?

The numbers in my earlier post came from finviz.com. I am surprised to see Yahoo has different numbers. Somebody's computer did not update his numbers.

So, I went to Schwab, and here are their numbers. Their trailing P/E numbers match that of finviz.

SO 20.68 14.47
DUK 21.75 18.11
ED 3.48 17.79

Again, the first numbers are trailing P/E, while the second are forward P/E. One can expect the forward P/E's to differ slightly, because these are estimates by analysts covering the stocks, and not actual reported earnings.

[NW-Bound]

I forgot to mention the numbers for the S&P 500 as of 12/18/2018

S&P 19.60 15.25

So, one can see utilities are richly valued compared to the average, while many tech stocks are dirt cheap, on the basis of trailing as well as forward P/Es.

What is going on?

[target2019]

Quote:

Originally Posted by NW-Bound The numbers in my earlier post came from finviz.com. I am surprised to see Yahoo has different numbers. Somebody's computer did not update his numbers. So, I went to Schwab, and here are their numbers. Their trailing P/E numbers match that of finviz. SO 20.68 14.47 DUK 21.75 18.11 ED 3.48 17.79 Again, the first numbers are trailing P/E, while the second are forward P/E. One can expect the forward P/E's to differ slightly, because these are estimates by analysts covering the stocks, and not actual reported earnings.

From YCharts:
SO PE Ratio (TTM) 18.45
DUK PE Ratio (TTM) 21.46
ED PE Ratio (TTM) 15.23

Earnings data is revised by company, so that could account for some difference in the E.

The point I first tried to make is that the Edison P/E you quoted is very far from the actual number. Out of curiosity I looked up just the three Utilities, and found P/E to be different in each case. So it just has me wondering about measures in general, and how accurate they might be.

[NW-Bound]

The P/E of 3.48 of Edison surely looks ridiculously wrong, yet is shared between at least finviz and Schwab. I just went to Merrill Edge, and it said 15.30. I went to TD Ameritrade, another broker that I have an account with. It said 3.48.

Something is very wrong. Should Congress pass a law mandating accurate P/E reporting by these Web sites?

[NW-Bound]

Quote:

Originally Posted by audreyh1 Actually the FAANG stocks have been brutally beaten down over the past month. Down more than the rest of the market.

Yes. But do they deserve to be? Well, perhaps except for Apple.

They had such lofty P/E's, and some investors decided to cash out.

[audreyh1]

Quote:

Originally Posted by NW-Bound Yes. But do they deserve to be? Well, perhaps except for Apple. They had such lofty P/E's, and some investors decided to cash out.

Right, Apple is probably the exception. Unfortunately Apple is always awarded a very low P/E compared to other tech stocks.

[target2019]

Quote:

Originally Posted by NW-Bound The P/E of 3.48 of Edison surely looks ridiculously wrong, yet is shared between at least finviz and Schwab. I just went to Merrill Edge, and it said 15.30. I went to TD Ameritrade, another broker that I have an account with. It said 3.48. Something is very wrong. Should Congress pass a law mandating accurate P/E reporting by these Web sites?

Congress is too busy with other things. LOL.

The fastgraphs service I use calculates a Normal P/E for each stock. For example, NYSE:SO is calculated at 16.5 for 10-year period. If we agree that the P/E is 14.4 today, then SO is actually under-valued compared to the standard 15.0 GDF, and the "Normal P/E" of 16.5.

For utilities, I am supposing they are fairly valued, and not in either of the bifurcated "camps". How's that?

[Lsbcal]

I do a modest amount of trading. In large caps I owned large cap growth (VIGAX) but switched to LC value in December as per an algorithm I use. Was up nicely but that sudden decline in growth was painful. Still finished up a very small amount on the trade.

Here is a 24 year chart of value versus growth. For large caps growth is represented by VIGAX and value by VVIAX (Vanguard index funds) and is shown by the yellow line. Similar index funds are used for small caps and mid caps.



You can see the extremes we hit in the late 1990's and early 2000's when the growth bubble really popped. Since then growth and value extremes have been much more subdued.

[NW-Bound]

Quote:

Originally Posted by target2019 ... For utilities, I am supposing they are fairly valued, and not in either of the bifurcated "camps". How's that?

The P/E's of the above utility companies are slightly above that of the S&P, according to the numbers quoted, unless the numbers are wrong. I have always thought that they are value stocks, and generally have a lower P/E than that of the overall market.

Now, we can look at XLU and VPU, the two utility ETFs that I know of, to have an idea of the composite P/E of the group.

Yahoo says XLU is 8.72, while Schwab says 16.73.

For VPU, Yahoo does not know, while Schwab says 7.14.

How do we get accurate info here?

[NW-Bound]

Quote:

Originally Posted by audreyh1 Right, Apple is probably the exception. Unfortunately Apple is always awarded a very low P/E compared to other tech stocks.

I don't think Apple P/E has always been this low. I never own shares of Apple to follow it closely, but recall that starting from a few years ago, the P/E dropped so low it caught my eyes. I think it may be the same time that Buffett, a value investor, started to buy some shares.

Rightly or wrongly, investors think Apple has already topped out, while they believe that Amazon and Netflix still have room to grow. I never own shares of these either.

[target2019]

Quote:

Originally Posted by NW-Bound The P/E's of the above utility companies are slightly above that of the S&P, according to the numbers quoted, unless the numbers are wrong. I have always thought that they are value stocks, and generally have a lower P/E than that of the overall market.

To be honest, for the Utilities we own (DUK and SO) I did not look at P/E when purchased. But I agree that the P/E of utilities is above S&P500. Fidelity research usually has something to make things clearer.
https://eresearch.fidelity.com/erese...earn&sector=55
Even there, you see different P/E estimate than other sources.
If you select the Business Cycle tab on the page, a possible explanation is shown, namely, in this part of US business cycle, Utilities are outperforming the S&P500, as they have done historically. Instead of using hard P/E numbers, I use the green/red indicators as part of a decision. You have to front-run this, though. Now isn't an optimum time to buy, obviously. The time to buy was when the sector under-performed. Of course there's more research required.

Quote:

Originally Posted by NW-Bound Now, we can look at XLU and VPU, the two utility ETFs that I know of, to have an idea of the composite P/E of the group. Yahoo says XLU is 8.72, while Schwab says 16.73. For VPU, Yahoo does not know, while Schwab says 7.14. How do we get accurate info here?

I have more faith in the P/E numbers mentioned on the Fidelity page (for Utilities sector). There is explanation about how they reach these numbers.
P/E (Last Year GAAP Actual) 19.37
P/E (This Year's Estimate) 17.72

They sound closer to Schwab numbers. I'll have to stop there and look at the research.

[NW-Bound]

Quote:

Originally Posted by target2019 To be honest, for the Utilities we own (DUK and SO) I did not look at P/E when purchased. But I agree that the P/E of utilities is above S&P500. Fidelity research usually has something to make things clearer. https://eresearch.fidelity.com/erese...earn&sector=55 Even there, you see different P/E estimate than other sources. If you select the Business Cycle tab on the page, a possible explanation is shown, namely, in this part of US business cycle, Utilities are outperforming the S&P500, as they have done historically...

I no longer own any individual utility stock, but have had XLU forever. Never pay much attention to it, as I devote more time looking at the more volatile stocks.

Just now look at it, and going back 1 year, 3 years, 5 years, XLU beats the S&P, both having dividend reinvested. How about that? You have to go back 10 years to see S&P beating it.

Of course, one can look at the chart and see clearly where there's fear in the market or economy, XLU leads. VPU I do not own, but tracks very close to XLU.

Should have paid more attention in order to buy low/sell high, as I am by nature a slicer-and-dicer.