Loading...
Symbols:
Authors:

Crazy P/E Ratios

by: Bespoke Investment Group October 08, 2008 | about stocks: AKS / ATI / CEG / CF / CNX / ESV / FCX / GCI / GNW / GT / HIG / L / MEE / MRO / MS / MTW / NBL / NBR / NE / NUE / RDC / RIG / SLM / TEX / TXT / WB / WFR / WYN / X / XL    

Bespoke Investment Group

About the author: From Bespoke:
Become a Contributor Submit an Article
  • Font Size:
  • Print

The average 2009 estimated P/E ratio for stocks in the S&P 500 is 11.9.  Currently, 48% of stocks in the index have an estimated P/E of less than ten.  Below we highlight stocks with the lowest estimated P/E ratios in the S&P 500.  Either earnings estimates are still way too high, or many of these stocks are trading at values of a lifetime.  Just looking at the top three stocks on the list (GNW,X, CF), even if their '09 earnings come in at half of current estimates, at current prices their P/Es would still be less than five. 

Lowestpes

Related Articles

This article has 23 comments:

  •  
    Oct 08 01:43 PM
    Both, actually. Earnings estimates are too high, and many companies are at prices that are the buy of a lifetime. Meanwhile, every terrified silly person is scrambling to get out of all future claims of any kind and into the 2% of our wealth that exists as cash. Why? Because authorities have decided to indulge a populist desire to slaughter the banks out of envy and resentment.

    Support capitalists or you have no capital. Law of nature, not up for discussion.
    Reply
  •  
    Oct 08 02:07 PM
    I suggest studying the S&P 500 price and earnings data at Robert Shiller's web-site, see irrationalexuberance.c... The data covers 1871 - 2008, and shows that as of 10/7/2008, the S&P 500 PE is ~16, near the historical average PE of ~16.

    So despite the sharp decline in the S&P 500, we are only now near the historical average PE. Any thoughts? Is Shiller's data wrong/misleading?

    *Note: Shiller used the average of ten-year trailing earnings when he calculates PE. Currently, average tr. 10 year earnings are ~61 and tr. one year earnings are approiximately 63.)

    for the data, Google: ie_data.xls

    www.econ.yale.edu/~shiller/data/ie_data...
    Reply
  •  
    Oct 08 02:58 PM
    I would have to guess that the market has already priced in anticipated drops in earnings going forward.

    The economy is just starting to slow down appreciably. Lower earnings will follow through the next year or more for most issues.

    Perhaps some will show increased sales, margins, and profits and might be worth a long-term value play but those would be the exceptions.
    Reply
  •  
    Oct 08 03:34 PM
    @JasonC:

    "Because authorities have decided to indulge a populist desire to slaughter the banks out of envy and resentment."

    Huh?? Wrong! The authorities have decided to BAIL OUT the banks at populist expense!!! You, sir, are an idiot and have it exactly BACKWARDS!!

    "Support capitalists or you have no capital. Law of nature, not up for discussion."

    Yeah, the way to support capitalists is to LET FREE MARKETS WORK. Not to socialize the downside. Again, you have it backwards. The authorities right now are tampering in a bad way with capitalism -- they are taking out those who were wise at the knees: a) by making them help pay for the failures of the unwise, b) by artificially inducing pricing that reneges the value of their wisdom to wait for market correction before buying in. This is NOT conducive to capitalism for the long haul -- it teaches the wrong lesson to the unwise, and punishes the wise.

    Try again another time.
    Reply
  •  
    Oct 08 07:10 PM
    The PE on SP5 is historically around 15, but today about 22 as of 9/30, Trailing five years is higher yet ~28. Usually the market will over correct to something like 9 or 8 before the correction is run out. The falling prices today mean that earnings must fall substantially to reach the required, or traditional, under ratio of below 15. By these guidelines there is one hell of a lot of grief left to go. But I suspect a bear market rally will intervene before the next act of violence. Z
    Reply
  •  
    Oct 08 07:38 PM
    Just fyi, P/E's are always lowest at the top of the market and highest at the bottom. If you think about it, you should understand why that would be so.
    Reply
  •  
    Oct 08 09:33 PM
    So, GKM are you saying P/E's look low or P/E's look high?
    Reply
  •  
    Oct 08 11:14 PM
    Zoeey and tcal - Schillers data shows currently we are about at 15 or 16 based on 10 yr average earnings.

    Overcorrections to single digits as you propose do no happen in every downturn and actually only happen about 3 times in the last 90 years. One of those was the decade of inflation, one was the WWII era, and one was briefly during the depression.

    However, the greater macro trend you are ignoring is the greater participation in the stock markets. More capital chasing the same earnings means higher P/E's. So, if we get to single digits, I'd be more than shocked.

    Technically, 8000 on the Dow and 850 or so on the S&P looks pretty impenetrable.

    Boomers are committed at this point, if they take it out now, they are pretty much sure to miss the start up and then pile in to create one hell of a bounce. If they stay in, they will be committed to adding even more at these levels.

    Additionally, recent tax changes have created a large demand in college savings accounts. Those monies are relatively new and will continue to grow with acceptance. Finally, while you might think foreigners would desert us, the truth is that their is no substitute - no country with a better combination of innovation/security and size. This is quite in evidence this week with the turn in the Euro and the European banks.

    We will print up as much as it takes to keep the boat afloat and folks will buy it and be glad their money is safe in times like this. They cannot leave us in the bad times - they will have to wait and try it in the good times.
    Reply
  •  
    Oct 09 12:02 AM
    Just bear in mind that Warren Buffett just bought CEG... one of those companies with the highest YTD% drops... & the 2nd highest in the list of P/Es.

    Granted, he has enough cash to weather anything... but his goal is to make more cash.

    As for the world's involvment protecting us from droping into single digits... a broader market, a supposed greater spreading of risk, has made for a much more volitile situation. It seems to have enhanced the fear rather than containing it.
    Reply
  •  
    Oct 09 08:59 AM
    As GKW points out..

    Do not get excited, P/Es will rise all the way down and "Investment Groups" of many shades will scratch their heads.
    Reply
  •  
    Oct 09 12:51 PM
    Yikes: These low-PE company look like some of the best investments out there right now ... including WB.
    Reply
  •  
    Oct 09 05:47 PM
    CEG fell out of bed early September but I can't find any articles that explain what happened. Can anyone shed some light?
    Reply
  •  
    Oct 10 12:02 AM
    i have 10300 shares of wb i hope your rite its real scary but i not lettig go i wish more people wopuld do the same!


    On Oct 09 12:51 PM davemcc3300 wrote:

    > Yikes: These low-PE company look like some of the best investments
    > out there right now ... including WB.
    Reply
  •  
    Oct 10 01:04 AM
    jcrash, I'm saying if you think that p/e's look cheap - then they likely look cheap for a reason and that could only mean one thing. When they look expensive, that's when the market will be starting to rally again.
    Reply
  •  
    Oct 10 01:36 AM
    I just bought X over the last two days. I also bought a call on it.

    concisetrading.blogspo.../
    Ryan
    Reply
  •  
    Oct 10 10:37 AM
    The market "may have priced in" anticipated 2009 earnings, but based on long term PE's, we're still in a bubble. see
    seekingalpha.com/artic...
    Reply
  •  
    Oct 10 01:45 PM
    GKM doesn't seem to know what he really meant. low PEs become so because the E is based on expected earnings for next year are assumed to be higher therefore PE seems low at current prices . But what happens is that by end of next year the E will go down because of recession and companies collectively will make much less E than was forcasted at this time so if E goes down by 25 % then your forcasted PE of 12 suddenly becomes 16
    Reply
  •  
    Oct 11 06:58 PM
    Where are the Ag stocks?
    Reply
  •  
    Oct 11 07:29 PM
    Good article, but a small correction in your table. Come next week, Morgan Stanley might have a PE of zero: Price=0/ Earnings=Some number => 0
    Reply
  •  
    Oct 11 10:53 PM
    "The data covers 1871 - 2008, and shows that as of 10/7/2008, the S&P 500 PE is ~16"

    Where do you get the data for the P/E for the SP500? I just calculated the P/E of SPY (based on NAV) which tracks the SP500 and as of Friday's close = 10.45. Of course this is trailing P/E, so even if earnings for the 500 stocks correct downward next year I just don't see much downside left. Shorting SPY seems like more like buying CSCO or something at the top of the dotcom bubble.
    Reply
  •  
    Oct 24 05:00 AM
    for Shiller's data, google search: "ie_data.xls"...
    Reply
  •  
    Oct 24 05:01 AM
    google ie_data.xls
    Reply
  •  
    Oct 26 03:55 AM

    "Because authorities have decided to indulge a populist desire to slaughter the banks out of envy and resentment."
    I would suggest your both right. Bailing out the banks by buying them is equivalent to slaughtering them. If the US is going to go the way of owning the banks then its going the way of say Laos. The hotel I stayed at there pays $33.00 a month to its employees. Why should we assume that the adoption of the same system would not lead to the same result in the US? I was sorry to see Greenspan capitulating to the corrupt mainstream establishment recently. He had previously been a very lucid advocate of free markets.
    Reply
More Comments on GNW ยป
More by Bespoke Investment Group
Investment Resources
Money Managment
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Bonds
Dollar/Currencies
Earnings
Economy