This link contains pertinent information:
http://pages.stern.nyu.edu/~adamodar/
Click VALUATION on the blue left side column
http://pages.stern.nyu.edu/~adamodar/
Click VALUATION on the blue left side column
I trust many of you will find this blog interesting
http://bespokeinvest.typepad.com/
Part of Bespoke's presentation method is to display complex data and multiple variables in a way that allows investors to easily interpret the information
http://bespokeinvest.typepad.com/
Part of Bespoke's presentation method is to display complex data and multiple variables in a way that allows investors to easily interpret the information
BESPOKE crunches the numbers on country p/e ratios
Top Dog => Belgium: 11.37
Australia: 17.24
http://bespokeinvest.typepad.com/bespoke/2007/06/country_price_t.html
Top Dog => Belgium: 11.37
Australia: 17.24
http://bespokeinvest.typepad.com/bespoke/2007/06/country_price_t.html
- Joined
- 22 July 2006
- Posts
- 852
- Reactions
- 1
Even with this info, I would have a few questions:
i.e. Is this forward or current p/e's.
I would also point out that p/e's, in my opinion, are a pretty poor gauge of relative value. Company's/Regions that are in a high level growth phase will look expensive to say a region that is experiencing slower growth. But, depending on the acceleration of the growth, the Company/Region with the higher p/e may actually be better relative value.
DCF, whilst subjective, is the best valuation method. And the key ingredient in the equation is how rapidly the cash flow increases....
Cheers
- Joined
- 31 October 2006
- Posts
- 403
- Reactions
- 0
reece
I agree, however P/E of course has its place provided that the user understands what affects P/E & why e.g. as you say country X may differ to country Y (or even company A v company B on the same market). Would like to see more consideration of EV/EBITDA (/EBIT) multiples..shrug..
NYSE short interest keeps climbing
http://bespokeinvest.typepad.com/bespoke/2007/06/nyse-short-inte.html
http://bespokeinvest.typepad.com/bespoke/2007/06/nyse-short-inte.html
Barry Ritholtz, an investment manager and commentator on financial TV network CNBC, operates the base camp for new explorers of investing blogs, the Big Picture. Accessible and unintimidating, the Big Picture tackles both the economy and the financial markets with a conversational style and ample references to pop culture.
Blog etiquette calls for linking generously to other writers, and Ritholtz's links are among the choicest.
A recent post linked to an article in Portfolio, Conde Nast's new magazine on investing, which eviscerates technical analysis, the vaunted art of studying stock charts to anticipate the market's next move. The piece pokes fun at the craft's jargon, such as the J. Lo, a term for a stock turning upward as it rounds off a bottom.
Ritholtz's blogroll -- a list of recommended blogs -- casts a wide net and is a good starting point for eager investors. Below, a sampler from four categories of investing blogs: trader blogs, economics blogs, market analysis blogs and industry-insider blogs.
___
According to Brian Wesbury, the durable goods orders decline in May 2007 is no big deal. He is confident that the US economic expansion will continue.
Durable Goods Orders decline 2.8% in May
Comment by Brian Wesbury, Chief Economist, First Trust Advisors - USA
Date: 6/27/2007
New orders for durable goods declined 2.8% in May, a larger drop than the consensus expected. New orders excluding transportation declined 1.0% versus a consensus expected gain of 0.2%.
The weakness in new orders was concentrated in civilian aircraft, which accounted for two-thirds of the decline. However, orders also fell for primary metals, machinery, and electrical equipment and appliances. Areas of strength included communications equipment (part of computers and electronics) and motor vehicles and parts.
When calculating business investment for the GDP accounts, the Commerce Department uses non-defense capital goods shipments excluding aircraft. That indicator fell only 0.2% in May, although the figure for April was revised down slightly to a 0.9% gain from a previous estimate of 1.0%.
Unfilled orders rose 0.8% in May and are up 20.0% versus a year ago, larger than any year-to-year increase from 1980 to 2005. Unfilled orders for non-defense capital goods ex-aircraft increased for the 31st straight month and are up 16.8% versus a year ago.
Implications: Given the strength in new orders and shipments in March and April, the traditional month-to-month volatility in capital goods data, and the concentration of May’s weakness in civilian aircraft orders, we do not read much into today’s data. In fact, unlike most analysts, we had forecast the report would be a bit weaker than it actually was. Even with the data for May, in the past three months orders for non-defense capital goods ex-aircraft are up at a healthy 15.9% annual rate. Meanwhile, shipments of these goods are up at a 9.5% annual rate. These figures are consistent with our forecast that business investment will contribute about one percentage point to real GDP growth in the second quarter. Our view remains that businesses, flush with substantial profit growth the last few years, will expand capacity in the year ahead, confident the economic expansion will continue.
--------------------------------------------------------------------------
Durable Goods Orders decline 2.8% in May
Comment by Brian Wesbury, Chief Economist, First Trust Advisors - USA
Date: 6/27/2007
New orders for durable goods declined 2.8% in May, a larger drop than the consensus expected. New orders excluding transportation declined 1.0% versus a consensus expected gain of 0.2%.
The weakness in new orders was concentrated in civilian aircraft, which accounted for two-thirds of the decline. However, orders also fell for primary metals, machinery, and electrical equipment and appliances. Areas of strength included communications equipment (part of computers and electronics) and motor vehicles and parts.
When calculating business investment for the GDP accounts, the Commerce Department uses non-defense capital goods shipments excluding aircraft. That indicator fell only 0.2% in May, although the figure for April was revised down slightly to a 0.9% gain from a previous estimate of 1.0%.
Unfilled orders rose 0.8% in May and are up 20.0% versus a year ago, larger than any year-to-year increase from 1980 to 2005. Unfilled orders for non-defense capital goods ex-aircraft increased for the 31st straight month and are up 16.8% versus a year ago.
Implications: Given the strength in new orders and shipments in March and April, the traditional month-to-month volatility in capital goods data, and the concentration of May’s weakness in civilian aircraft orders, we do not read much into today’s data. In fact, unlike most analysts, we had forecast the report would be a bit weaker than it actually was. Even with the data for May, in the past three months orders for non-defense capital goods ex-aircraft are up at a healthy 15.9% annual rate. Meanwhile, shipments of these goods are up at a 9.5% annual rate. These figures are consistent with our forecast that business investment will contribute about one percentage point to real GDP growth in the second quarter. Our view remains that businesses, flush with substantial profit growth the last few years, will expand capacity in the year ahead, confident the economic expansion will continue.
--------------------------------------------------------------------------
CXO looks at the value of the most admired companies
http://www.cxoadvisory.com/blog/external/blog6-26-07/
http://www.cxoadvisory.com/blog/external/blog6-26-07/
Brian Wesbury(top US inflation hawk) says: The Fed Gets Bullish
http://www.ftportfolios.com/Common/CommentaryContent/MarketCommentary-514.pdf
http://www.ftportfolios.com/Common/CommentaryContent/MarketCommentary-514.pdf
Good piece on the threats to liquidity
http://www.ft.com/cms/s/73c48d7a-244a-11dc-8ee2-000b5df10621.html
http://www.ft.com/cms/s/73c48d7a-244a-11dc-8ee2-000b5df10621.html
The average investor now has between 5-10% of their portfolio in Asian stocks, excluding Japan
http://www.ft.com/cms/s/fbacb038-20...age=d89d6328-51da-11da-9ca0-0000779e2340.html
http://www.ft.com/cms/s/fbacb038-20...age=d89d6328-51da-11da-9ca0-0000779e2340.html
Rio has raised the valuation ante for mining companies by 33 per cent
http://www.smh.com.au/news/business/rio-bets-on-prices-holding/2007/07/13/1183833769360.html
http://www.smh.com.au/news/business/rio-bets-on-prices-holding/2007/07/13/1183833769360.html
Countries GDP as US States
http://bigpicture.typepad.com/comments/2007/01/countries_gdp_a.html
[Australia = Ohio]
http://bigpicture.typepad.com/comments/2007/01/countries_gdp_a.html
[Australia = Ohio]
July 2007 Equity Market Returns: OZ Top Ten
http://bespokeinvest.typepad.com/bespoke/2007/08/july-2007-equit.html
http://bespokeinvest.typepad.com/bespoke/2007/08/july-2007-equit.html
Leonhardt on Stock Market Valuations
:::::::::::::::::::::::::::
August 15, 2007
Economic Scene
Remembering a Classic Investing Theory
By DAVID LEONHARDT / New York Times
More than 70 years ago, two Columbia professors named Benjamin Graham and David L. Dodd came up with a simple investing idea that remains more influential than perhaps any other. In the wake of the stock market crash in 1929, they urged investors to focus on hard facts ”” like a company’s past earnings and the value of its assets ”” rather than trying to guess what the future would bring. A company with strong profits and a relatively low stock price was probably undervalued, they said.
Their classic 1934 textbook, “Security Analysis,” became the bible for what is now known as value investing. Warren E. Buffett took Mr. Graham’s course at Columbia Business School in the 1950s and, after working briefly for Mr. Graham’s investment firm, set out on his own to put the theories into practice. Mr. Buffett’s billions are just one part of the professors’ giant legacy.
Yet somehow, one of their big ideas about how to analyze stock prices has been almost entirely forgotten. The idea essentially reminds investors to focus on long-term trends and not to get caught up in the moment. Unfortunately, when you apply it to today’s stock market, you get even more nervous about what’s going on.
Most Wall Street analysts, of course, say there is nothing to be worried about, at least not beyond the mortgage market. In an effort to calm investors after the recent volatility, analysts have been arguing that stocks are not very expensive right now. The basis for this argument is the standard measure of the market: the price-to-earnings ratio.
It sounds like just the sort of thing the professors would have loved. In its most common form, the ratio is equal to a company’s stock price divided by its earnings per share over the last 12 months. You can skip the math, though, and simply remember that a P/E ratio tells you how much a stock costs relative to a company’s performance. The higher the ratio, the more expensive the stock is ”” and the stronger the argument that it won’t do very well going forward.
Right now, the stocks in the Standard & Poor’s 500-stock index have an average P/E ratio of about 16.5, which by historical standards is quite normal. Since World War II, the average P/E ratio has been 16.1. During the bubbles of the 1920s and the 1990s, on the other hand, the ratio shot above 40. The core of Wall Street’s reassuring message, then, is that even if the mortgage mess leads to a full-blown credit squeeze, the damage will not last long because stocks don’t have far to fall.
To Mr. Graham and Mr. Dodd, the P/E ratio was indeed a crucial measure, but they would have had a problem with the way that the number is calculated today. Besides advising investors to focus on the past, the two men also cautioned against putting too much emphasis on the recent past. They realized that a few months, or even a year, of financial information could be deeply misleading. It could say more about what the economy happened to be doing at any one moment than about a company’s long-term prospects.
So they argued that P/E ratios should not be based on only one year’s worth of earnings. It is much better, they wrote in “Security Analysis,” to look at profits for “not less than five years, preferably seven or ten years.”
This advice has been largely lost to history. For one thing, collecting a decade’s worth of earnings data can be time consuming. It also seems a little strange to look so far into the past when your goal is to predict future returns.
But at least two economists have remembered the advice. For years, John Y. Campbell and Robert J. Shiller have been calculating long-term P/E ratios. When they were invited to a make a presentation to Alan Greenspan in 1996, they used the statistic to argue that stocks were badly overvalued. A few days later, Mr. Greenspan touched off a brief worldwide sell-off by wondering aloud whether “irrational exuberance” was infecting the markets. In 2000, not long before the market began its real swoon, Mr. Shiller published a book that used Mr. Greenspan’s phrase as its title.
Today, the Graham-Dodd approach produces a very different picture from the one that Wall Street has been offering. Based on average profits over the last 10 years, the P/E ratio has been hovering around 27 recently. That’s higher than it has been at any other point over the last 130 years, save the great bubbles of the 1920s and the 1990s. The stock run-up of the 1990s was so big, in other words, that the market may still not have fully worked it off.
Now, this one statistic does not mean that a bear market is inevitable. But it does offer a good framework for thinking about stocks.
Over the last few years, corporate profits have soared. Economies around the world have been growing, new technologies have made companies more efficient and for a variety of reasons ”” globalization and automation chief among them ”” workers have not been able to demand big pay increases. In just three years, from 2003 to 2006, inflation-adjusted corporate profits jumped more than 30 percent, according to the Commerce Department. This profit boom has allowed standard, one-year P/E ratios to remain fairly low.
Going forward, one possibility is that the boom will continue. In this case, the Graham-Dodd P/E ratio doesn’t really matter. It is capturing a reality that no longer exists, and stocks could do well over the next few years.
The other possibility is that the boom will prove fleeting. Perhaps the recent productivity gains will peter out (as some measures suggest is already happening). Or perhaps the world’s major economies will slump in the next few years. If something along these lines happens, stocks may suddenly start to look very expensive.
In the long term, the stock market will almost certainly continue to be a good investment. But the next few years do seem to depend on a more rickety foundation than Wall Street’s soothing words suggest. Many investors are banking on the idea that the economy has entered a new era of rapid profit growth, and investments that depend on the words “ew era” don’t usually do so well.
That makes for one more risk in a market that is relearning the meaning of the word.
:::::::::::::::::::::::::::
August 15, 2007
Economic Scene
Remembering a Classic Investing Theory
By DAVID LEONHARDT / New York Times
More than 70 years ago, two Columbia professors named Benjamin Graham and David L. Dodd came up with a simple investing idea that remains more influential than perhaps any other. In the wake of the stock market crash in 1929, they urged investors to focus on hard facts ”” like a company’s past earnings and the value of its assets ”” rather than trying to guess what the future would bring. A company with strong profits and a relatively low stock price was probably undervalued, they said.
Their classic 1934 textbook, “Security Analysis,” became the bible for what is now known as value investing. Warren E. Buffett took Mr. Graham’s course at Columbia Business School in the 1950s and, after working briefly for Mr. Graham’s investment firm, set out on his own to put the theories into practice. Mr. Buffett’s billions are just one part of the professors’ giant legacy.
Yet somehow, one of their big ideas about how to analyze stock prices has been almost entirely forgotten. The idea essentially reminds investors to focus on long-term trends and not to get caught up in the moment. Unfortunately, when you apply it to today’s stock market, you get even more nervous about what’s going on.
Most Wall Street analysts, of course, say there is nothing to be worried about, at least not beyond the mortgage market. In an effort to calm investors after the recent volatility, analysts have been arguing that stocks are not very expensive right now. The basis for this argument is the standard measure of the market: the price-to-earnings ratio.
It sounds like just the sort of thing the professors would have loved. In its most common form, the ratio is equal to a company’s stock price divided by its earnings per share over the last 12 months. You can skip the math, though, and simply remember that a P/E ratio tells you how much a stock costs relative to a company’s performance. The higher the ratio, the more expensive the stock is ”” and the stronger the argument that it won’t do very well going forward.
Right now, the stocks in the Standard & Poor’s 500-stock index have an average P/E ratio of about 16.5, which by historical standards is quite normal. Since World War II, the average P/E ratio has been 16.1. During the bubbles of the 1920s and the 1990s, on the other hand, the ratio shot above 40. The core of Wall Street’s reassuring message, then, is that even if the mortgage mess leads to a full-blown credit squeeze, the damage will not last long because stocks don’t have far to fall.
To Mr. Graham and Mr. Dodd, the P/E ratio was indeed a crucial measure, but they would have had a problem with the way that the number is calculated today. Besides advising investors to focus on the past, the two men also cautioned against putting too much emphasis on the recent past. They realized that a few months, or even a year, of financial information could be deeply misleading. It could say more about what the economy happened to be doing at any one moment than about a company’s long-term prospects.
So they argued that P/E ratios should not be based on only one year’s worth of earnings. It is much better, they wrote in “Security Analysis,” to look at profits for “not less than five years, preferably seven or ten years.”
This advice has been largely lost to history. For one thing, collecting a decade’s worth of earnings data can be time consuming. It also seems a little strange to look so far into the past when your goal is to predict future returns.
But at least two economists have remembered the advice. For years, John Y. Campbell and Robert J. Shiller have been calculating long-term P/E ratios. When they were invited to a make a presentation to Alan Greenspan in 1996, they used the statistic to argue that stocks were badly overvalued. A few days later, Mr. Greenspan touched off a brief worldwide sell-off by wondering aloud whether “irrational exuberance” was infecting the markets. In 2000, not long before the market began its real swoon, Mr. Shiller published a book that used Mr. Greenspan’s phrase as its title.
Today, the Graham-Dodd approach produces a very different picture from the one that Wall Street has been offering. Based on average profits over the last 10 years, the P/E ratio has been hovering around 27 recently. That’s higher than it has been at any other point over the last 130 years, save the great bubbles of the 1920s and the 1990s. The stock run-up of the 1990s was so big, in other words, that the market may still not have fully worked it off.
Now, this one statistic does not mean that a bear market is inevitable. But it does offer a good framework for thinking about stocks.
Over the last few years, corporate profits have soared. Economies around the world have been growing, new technologies have made companies more efficient and for a variety of reasons ”” globalization and automation chief among them ”” workers have not been able to demand big pay increases. In just three years, from 2003 to 2006, inflation-adjusted corporate profits jumped more than 30 percent, according to the Commerce Department. This profit boom has allowed standard, one-year P/E ratios to remain fairly low.
Going forward, one possibility is that the boom will continue. In this case, the Graham-Dodd P/E ratio doesn’t really matter. It is capturing a reality that no longer exists, and stocks could do well over the next few years.
The other possibility is that the boom will prove fleeting. Perhaps the recent productivity gains will peter out (as some measures suggest is already happening). Or perhaps the world’s major economies will slump in the next few years. If something along these lines happens, stocks may suddenly start to look very expensive.
In the long term, the stock market will almost certainly continue to be a good investment. But the next few years do seem to depend on a more rickety foundation than Wall Street’s soothing words suggest. Many investors are banking on the idea that the economy has entered a new era of rapid profit growth, and investments that depend on the words “ew era” don’t usually do so well.
That makes for one more risk in a market that is relearning the meaning of the word.
So is US the market now on the way back up?
One day of buying doesn’t end a correction, of course, and investors are going to be looking for more to conclude that a bottom has indeed been reached. It’s particularly true when considering investors can look over the earnings situation (decent), economic outlook (still reasonably solid) and the valuation of stocks (most have reasonable price-to-earnings ratios), and yet still be afraid to dip back into the markets. “There’s still quite a bit of uncertainty out there as regards the extent of this bad paper and where it’s hidden,” says Jeff Lancaster, principal at Bingham, Osborn & Scarborough, which manages $2 billion in assets. “You see all these big companies trading at 15, 16, 17x earnings in an environment of low inflation and low interest rates, but the question is what lies beneath ”” the short answer is no one really knows.”
Source: David Gaffen, WSJ, August 17
One day of buying doesn’t end a correction, of course, and investors are going to be looking for more to conclude that a bottom has indeed been reached. It’s particularly true when considering investors can look over the earnings situation (decent), economic outlook (still reasonably solid) and the valuation of stocks (most have reasonable price-to-earnings ratios), and yet still be afraid to dip back into the markets. “There’s still quite a bit of uncertainty out there as regards the extent of this bad paper and where it’s hidden,” says Jeff Lancaster, principal at Bingham, Osborn & Scarborough, which manages $2 billion in assets. “You see all these big companies trading at 15, 16, 17x earnings in an environment of low inflation and low interest rates, but the question is what lies beneath ”” the short answer is no one really knows.”
Source: David Gaffen, WSJ, August 17
Warren Buffett
A century ago, John Pierpont Morgan bought a modest amount of stock in the midst of a market panic. And the knowledge that wise investors were willing to buy into the market reversed sentiment. Could this be happening again? The idea that Warren Buffett could put a $50 billion cash pile to work buying companies like Countrywide Financial or TXU has titillated investors. But they shouldn't get carried away believing in a Buffett put. The billionaire head of Berkshire Hathaway won't strike until he can negotiate sweet deals. That only happens when real distress rears its head.
Judging by some of the market's most troubled companies, distress hasn't hit just yet. Take Countrywide, the mortgage lender at the heart of the Buffett speculation. Last week it received an $11.5 billion cash infusion from banks. That should shore it up for now, but it's hardly out of the water. It can't sell its riskier loans, and skyrocketing delinquencies could undermine its book value. So while Mr. Buffett might be circling some of the more desirable assets, such as the mortgage-servicing unit, he would probably wait until Countrywide's problems worsen before scooping up pieces. Even then it's not clear Countrywide has the like-minded management and protected market position that Mr. Buffett favors.
Mr. Buffett has had a few experiences that could teach him to be a bit more patient. He invested $700 million in a series of cumulative convertible preferred stock in Salomon one month before the 1987 crash. Four years later, he had to step into a temporary role as chairman after his predecessor resigned amid a scandal. Had he invested in Treasury bills instead, he would have made about the same return with far less risk.
That's not to say the recent credit troubles and falling stock prices don't make a famed value investor like Mr. Buffett perk up. But while he is willing to spend billions on the right assets, even buying a big listed company would be a value-based decision on its merits, not a vote of confidence in stocks in general. Investors looking for him to signal a market bottom might be disappointed.
Source: BreakingViews.com
August 22, 2007
A century ago, John Pierpont Morgan bought a modest amount of stock in the midst of a market panic. And the knowledge that wise investors were willing to buy into the market reversed sentiment. Could this be happening again? The idea that Warren Buffett could put a $50 billion cash pile to work buying companies like Countrywide Financial or TXU has titillated investors. But they shouldn't get carried away believing in a Buffett put. The billionaire head of Berkshire Hathaway won't strike until he can negotiate sweet deals. That only happens when real distress rears its head.
Judging by some of the market's most troubled companies, distress hasn't hit just yet. Take Countrywide, the mortgage lender at the heart of the Buffett speculation. Last week it received an $11.5 billion cash infusion from banks. That should shore it up for now, but it's hardly out of the water. It can't sell its riskier loans, and skyrocketing delinquencies could undermine its book value. So while Mr. Buffett might be circling some of the more desirable assets, such as the mortgage-servicing unit, he would probably wait until Countrywide's problems worsen before scooping up pieces. Even then it's not clear Countrywide has the like-minded management and protected market position that Mr. Buffett favors.
Mr. Buffett has had a few experiences that could teach him to be a bit more patient. He invested $700 million in a series of cumulative convertible preferred stock in Salomon one month before the 1987 crash. Four years later, he had to step into a temporary role as chairman after his predecessor resigned amid a scandal. Had he invested in Treasury bills instead, he would have made about the same return with far less risk.
That's not to say the recent credit troubles and falling stock prices don't make a famed value investor like Mr. Buffett perk up. But while he is willing to spend billions on the right assets, even buying a big listed company would be a value-based decision on its merits, not a vote of confidence in stocks in general. Investors looking for him to signal a market bottom might be disappointed.
Source: BreakingViews.com
August 22, 2007
