pe s on us stocks drop aiding bull mkt

as i started reading this i got prepared to jump on all my honey pots and get out a razor blade ready to slash my wrists. thankfully, as i got to the end of it there seemed hope still for the bears. not much but some ....

if bush keeps both houses tomorrow it'll be election fraud lol. if the dems win it'll be ...... well they win don't they, eh ?

bloomberg.


Price-Earnings Ratios on U.S. Stocks Drop, Aiding Bull Market

By Hilary Johnson

Nov. 6 (Bloomberg) -- U.S. stocks are cheaper relative to earnings than they were four years ago, when the market began rallying, and may be poised for further gains in the face of slower profit growth.

The Standard & Poor's 500 Index is valued at about 17 times its members' earnings per share for the past year, down from 26 times in October 2002. It's the first time since at least 1960 that the price-earnings ratio has declined in a bull market, according to Birinyi Associates Inc., a money-management and research firm based in Westport, Connecticut. The gauge fell last week as the index had its first loss since September.

This year's profits at S&P 500 companies, bolstered by the Federal Reserve's decision to stop raising interest rates, may quadruple from their 2002 level, according to data compiled by Bloomberg. The index has climbed 76 percent during the period.

``You're still looking at a very reasonable multiple,'' said John Buckingham, who oversees about $825 million at Al Frank Asset Management in Laguna Beach, California. ``We're going to continue to see decent growth, and with the way interest rates are today, equities are attractive.''

Stocks fell last week as the government said the unemployment rate dropped to 4.4 percent, a five-year low, in October and companies added more jobs in August and September than first reported.

The S&P 500 fell 1 percent to 1364.30, up from a bear-market low of 776.76 on Oct. 9, 2002. The Dow Jones Industrial Average declined 0.9 percent to 11,986.04 and recorded losses every day of the week. The Nasdaq Composite Index slid 0.8 percent to 2330.79.

Beating Estimates

This bull market is the second-longest since World War II, according to Ned Davis Research Inc. in Venice, Florida. Last month, the Dow average set a record and the S&P 500 climbed to its highest level since November 2000 as earnings surpassed analysts' estimates.

Third-quarter profits exceeded forecasts at 74 percent of the S&P 500 companies that reported through last week, above the average of 57 percent since 1992, according to data compiled by Thomson Financial.

Cisco Systems Inc., the world's largest maker of computer networking equipment, and Walt Disney Co., the second-biggest U.S. media company, are among the index members scheduled to release quarterly results this week.

Earnings for the S&P 500 probably grew more than 10 percent for the 13th straight quarter, matching the longest streak since at least 1950, according to Thomson. Profit climbed by an estimated 17.4 percent in the period, Thomson said Oct. 27.

Weakening Growth

Analysts don't see the pace lasting much longer. In the first quarter of next year, earnings may increase 8.4 percent, Thomson's data shows.

Economic expansion is also projected to weaken. Growth in gross domestic product, or the value of all goods and services, may slow to 2.6 percent in 2007 from 3.3 percent this year, a Bloomberg survey of economists showed.

The Conference Board reported last week that its consumer confidence index fell in October, and another gauge of sentiment may show a decline this week. The University of Michigan's confidence index may slip to 93.4 from 93.6 in October, based on a survey of economists by Bloomberg News.

Wal-Mart Stores Inc., the world's largest retailer, said last week that November sales at stores open more than a year will be unchanged, the worst performance in more than a decade.

Some investors say price-earnings multiples only appear low because the U.S. economy is at risk of a recession. If earnings drop, history suggests that valuations will contract further.

More Enthusiasm

The price-earnings ratio on the S&P 500 fell to a low of 6.5 in April 1980, and the average from 1960 to 1998 was 15.4, according to Birinyi.

``The real risk to the market is that earnings come in far below the consensus for next year,'' said Douglas Cliggott, who helps manage $17.5 million as chief investment officer at Race Point Asset Management in New York. ``That's a reason for thinking most of what's going to happen has happened in the equity market.''

Even as growth slows, enthusiasm about equities is rising. Bullish newsletter writers increased to 53.7 percent in the week ended Oct. 27, the highest since January, from 52.7 percent the previous week, according to Investors Intelligence, a New Rochelle, New York-based publication.

Confidence among investors has done relatively little to bolster shares of the largest U.S. companies, including those in the S&P 500, during the market's four-year advance. The index is valued at about half the price-earnings ratio of 35 for the Russell 2000 Index, a benchmark for smaller companies.

Beating the Average

``Valuation is the best indicator of sentiment,'' said Jason Trennert, chief investment strategist at Strategas Research Partners LLC in New York. ``People have gotten burned so badly in the late '90s, they've been slow to recognize value in large-cap stocks.''

Cisco trades at about 19 times its earnings forecasts for the next 12 months. In 2002, the ratio peaked at 105. The San Jose, California-based company in August forecast sales growth for fiscal 2007, ending next July, that exceeded analysts' estimates. Cisco reports results on Nov. 8.

Disney, based in Burbank, California, is priced at 20 times this year's profits, below its October 2002 peak of more than 30. Disney announced record fiscal third-quarter profit in August, and its fourth-quarter results are due Nov. 9.

S&P 500 companies will earn $87.06 a share next year as a group, according to Thomson. That translates into 9.4 percent growth, exceeding the average of 7.6 percent since 1947.

``What the markets indicate is that there's still undervaluation in the S&P 500,'' said Mark Coffelt, manager of the Texas Capital Value & Growth Fund in Austin, Texas. His $80 million fund has beaten the S&P 500 every year since 1999.

To contact the reporter on this story: Hilary Johnson in New York at [email protected] .

Last Updated: November 5, 2006 22:37 EST