Posts Tagged ‘future earnings’

STOCKS ARE CHEAP, BUT THIS METRIC DOESN’T WORK?

STOCKS ARE CHEAP, BUT THIS METRIC DOESN’T WORK?

Courtesy of The Pragmatic Capitalist 

WHEN PEOPLE THINK OF IMPORTANT JOBS THAT CAN NOT BE LEFT OUT OF OUR LIVES THEY DO NOT NORMALLY THINK OF WASTE COLLECTORS. BUT DURING A HAULERS STRIKE GARBAGE PILES UP AND BEGINS TO SMELL. THERE IS NOWHERE TO PLACE IT ALL AND PESTS RUN RAMPANT AS THEIR AVAILABLE FOOD BECOMES ABUNDANT. DUMPSTERS OVERFILLED TRASH WASTE HAULER STRIKE

I’ll be frank – I have a special place in my heart for the PE ratio and it is the same place where all the things I hate are stored.  This simple to understand metric has, in my opinion, resulted in more misguided Wall Street thinking than just about any metric in existence.  A quick glance at the breakdown of the PE ratio shows serious flaws at work here.  It is basically a moving price target (which is never correct unless you still believe in EMH) divided by the earnings estimates that are created by analysts who have literally no idea where future earnings will be.  In other words, you might as well pick random numbers out of a hat and divide them and then go buy or sell stocks.  Naturally, proponents of the PE ratio will say that you shouldn’t use forward PE’s, but to those people I have to respond: do you always drive through your rear view mirror?  The numerator (or market price in the PE equation) could care less about past earnings so it’s less than helpful in telling us where future prices might go.

What disgusts me even more about this metric is its incessant use in selling buy and hold strategies.  You can’t read a book on value investing or buy and hold without running into the PE ratio.  “The market is cheap – stocks for the long-run!”  You’ve probably seen this slogan on every mutual fund pamphlet you’ve ever read.  Your stock broker no doubt thinks the market is “cheap” right now.  The PE ratio has become the sales pitch of an entire generation of sales people who are just herding small investors into fee based products.  “Did you know Warren Buffet is a value investor?”  “Just buy cheap stocks and hang on.  Your status on the list of the world’s richest is in the making!”  Or so goes the old sales pitch.

So, I wasn’t surprised to open Yahoo Finance this morning to see the following headline arguing that stocks are cheap according to the PE ratio.  But just two articles down is an article from the WSJ arguing that the PE ratio doesn’t work in this environment.  You can’t make this stuff up.  According to the article:

“Not only is the P/E


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ValueWalk

Goldman Sachs & JPMorgan Among Top Ten Most Prestigious Internship Programs

By Jacob Wolinsky. Originally published at ValueWalk.

Google And NASA Named The Two Most Prestigious Internship Programs To Have On A Resume, According To Latest Vault Career Intelligence Survey

Infosys Has The No. 1 Best Overall Internship Program; Abbot Has The No. 1 Health Care Internship And No. 1 Program For Data Analytics And Engineering; Captech Has The No. 1 Consulting Internship

Q3 2020 hedge fund letters, conferences and more

Vault’s Survey Also Looks at Trends Influencing the Internship Search

New York, NY, (Tuesday, October 27, 2020) Vault, the top career intelligence platform, has ...



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Zero Hedge

CDC Reaffirms Warning Against Nonessential Travel, Including Cruises

Courtesy of ZeroHedge View original post here.

By Evan Gove of Porthole Cruise

The CDC has updated a level 3 warning to avoid nonessential travel, citing cruises in particular as a known spreader of COVID-19.

The update on the CDC website doesn’t leave any room for interpretation: 

Cruise passengers are at increased risk of person-to-person spread of infectious diseases, including COVID-19, and outbreaks of COVID-19 have been ...



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Phil's Favorites

Trump's trade war - what was it good for? Not much

 

Trump's trade war – what was it good for? Not much

When you push an opponent, he tends to push back. AP Photo/Ahn Young-joon

Courtesy of Rebecca Ray, Boston University

The 2016 election was a referendum on free trade, which many blamed for destroying millions of American manufacturing jobs. In 2020, it could be about the merits of trade wars.

During President Donald Trump’s first term, he tore up deals, launched a trade war with China and renegotiated NAFTA. His campaign claims the war was a succes...



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Biotech/COVID-19

In rural America, resentment over COVID-19 shutdowns is colliding with rising case numbers

 

In rural America, resentment over COVID-19 shutdowns is colliding with rising case numbers

Business restrictions early in the pandemic, when rural towns had few cases, triggered a backlash that haunts them now. Johannes Eisele/AFP/Getty Images

Courtesy of Lauren Hughes, University of Colorado Anschutz Medical Campus and Roberto Silva, University of Colorado Denver...



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Politics

How to track your mail-in ballot

 

How to track your mail-in ballot

Make sure you know when your ballot is arriving, and whether it’s been accepted for counting back at your election office. erhui1979/DigitalVision Vectors via Getty Images

Courtesy of Steven Mulroy, University of Memphis

Many voters who want to participate in the election by mail are concerned about when they’ll receive their ballot – and whether it will get back in time to be counted.

The pandemic has caused interest in ...



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Kimble Charting Solutions

Doc Copper/Gold Indicator Breaking Out Again?

Courtesy of Chris Kimble

The Doc Copper/Gold ratio broke above a 2-year falling channel back in 2016 at (1). Following this breakout, it rallied for the next year. During that year, Copper related assets did very well!

The ratio peaked in the summer of 2018 and created a series of lower highs over the past two years.

The strength of late has the ratio attempting to break above dual resistance at (2).

If the ratio continues to push higher and succeeds in breaking out, Copper, Basic Materials (XLB), and ...



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Chart School

Dow Gann Angle Update

Courtesy of Read the Ticker

Time to see what happens to the Dow post US elections.

The Dow Gann Angle Target 3 (from 2007 top) is on the table, and what a ride that will be. The FED went BRRRRR is all the fundamental news you need to know. Gann angles are very good tool to see how the masses are pushing price.


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The last two US elections saw Bitcoin and the DOW rally well for 6 months, due to stimulus. The most bearish 2020 US Election case for the markets is a Biden win with the Senate and Congress controlled by the Democrats, somehow this blog feels that is very unlikely. So what could go wrong!


...

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Digital Currencies

Bitcoin: the UK and US are clamping down on crypto trading - here's why it's not yet a big deal

 

Bitcoin: the UK and US are clamping down on crypto trading – here's why it's not yet a big deal

Where there’s a bit there’s a writ. Novikov Aleksey

Courtesy of Gavin Brown, University of Liverpool

The sale and promotion of derivatives of bitcoin and other cryptocurrencies to amateur investors is being banned in the UK by the financial regulator, the Financial Conduct Authority (FCA). It is a...



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Mapping The Market

COVID-19 Forces More Than Half of Asset Management Firms to Accelerate Adoption of Digital Marketing Technology

By Jacob Wolinsky. Originally published at ValueWalk.

There is no doubt that the use of technology to support client engagement initiatives brings both opportunities and threats but this has been brought into sharp focus this year with the COVID-19 pandemic.

The crisis has brought to the fore the need for firms to enable flexibility in client engagement – the expectation that providers will communicate to clients on their terms, at their speed and frequency and on their preferred channels, is now a given. This is even more critical when clients are experiencing unparalleled anxiety from both market conditions and their own personal circumstances.

...

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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Promotions

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Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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