The Market Is Getting Expensive, Here’s How To Stay Profitable
Investment U | Jul 09, 2017 03:27AM ET
There’s really no denying it - value investors are having a tough time in the U.S. right now. Our markets are dominated by expensive stocks. As you can see from this week’s chart, U.S. equities are sold at a steep markup today compared to other global investments.
It’s not hard to see why.
The current bull market is in its ninth year, and the Dow has tripled in price since its 2009 lows. But the index’s earnings haven’t even doubled over the same time period. The result has been what analysts call multiple expansion. American investors are paying higher prices for each dollar of earnings than they’d pay almost anywhere else in the world.
Some bearish pundits have used our country’s high P/E ratio as evidence of an impending crash. We don’t agree with them. As Alexander Green recently wrote , these kinds of financial fearmongers are usually wrong - and often driven by ulterior motives.
But we do acknowledge that American large caps just don’t offer the same potential upside as other asset classes nowadays.
One way to find value in this environment is to look beyond the U.S.
As you can see above, the countries of the former Soviet bloc have some incredibly cheap equity markets. Hungary’s forward P/E ratio is more than 33% lower than ours. Russia’s is more than 66% lower. The SPDR S&P Emerging Europe ETF (NYSE:GUR) offers good exposure to both.
South America’s equity markets are also appealingly cheap - especially those of Brazil and Peru. Thus, the iShares MSCI All Peru Capped (NYSE:EPU) and the iShares MSCI Brazil Capped (NYSE:EWZ) are good choices for value-focused investors.
To learn more about finding value among global investments, check out It’s a best-selling guide from Oxford Club Options Strategist Karim Rahemtulla.
But for investors who prefer to keep their money in the land of the free, there are other options.
The high P/E ratio of the U.S. stock market is largely a function of expensive megacaps. Alphabet (NASDAQ:GOOGL) sells for a dizzying 33 times one-year earnings. Amazon (Nasdaq: NASDAQ:AMZN) sells for an almost unbelievable 200 times one-year earnings.
It’s no wonder these Nasdaq blue chips have hit some choppy waters recently .
Get The News You Want
But if you look to small cap and midcap U.S. stocks instead, you’ll find much more reasonable valuations.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.