Salient to Investors:

  • P/E ratios among the 50 largest companies in the S&P 500 Index deviate from the mean by an average 22%, nearly the lowest on record since 1990. An average of 380 Index companies rose in each of the last 5 years, versus 307 in the 1990s. In 2007, the deviation in P/E ratios for the 50 largest Index companies was 25%, the lowest since at least 1990, the beginning of a decade when the average deviation was 37%. The deviation was highest at 57% in 1999.
  • Eric Schoenstein at Jensen Quality Growth Fund sees less interest in picking stocks than just investing in markets, with buyers are making too few distinctions among good and bad companies, and could exacerbate selling once it begins – the fact that everything moves in lockstep up means they would probably drop in lockstep down.
  • Hayes Miller at Baring Asset Mgmt said stocks should not be valued as similarly as they are, which is abnormal and unsustainable.
  • Scott Clemons at Brown Brothers Harriman Private Banking said people are buying stocks for the sake of buying stocks – akin to the late 1990s in only one area, dot-com, of the market.
  • ETFs make it easy to accumulate large positions without regard to the individual companies.
  • Brent Schutte at BMO Global Asset Mgmt said everyone was a stock picker in the 1990s, whereas today everyone does strategic asset allocations and buys index funds, which narrows valuations.
  • Doug Foreman at Kayne Anderson Rudnick Investment Mgmt said many companies and industries are doing very well, so the market does not feel the need to price one group much higher than everything else – a much better balance.
  • Morgan Stanley forecast a slower though sustained rise in the S&P 500 to 3,000 by 2020 amid continued US economic strength.
  • Merck trades at 17.2 x earnings with analysts forecasting profit will be little changed in 2014, the same valuation as Qualcomm with an estimated earnings growth of 32%. Apple is valued at 16.6 x earnings with a projected earnings growth of 14%, versus 20.8 x for PepsiCo with a projected earnings growth of 5%.
  • Todd Lowenstein at Highmark Capital Mgmt sees a whole group of stocks in growth purgatory, and expects returns from here to come less from multiple expansion and more from fundamentals.

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