Are stocks cheap?

It’s easy to find talking heads that say this stock market is a buying opportunity, and that some stocks are cheap.  Obviously opinions differ.  But looking at PE (Price/Earnings ratio), consider this from FT: “[W] hile the rest of the corporate sector may not suffer as much as financials, current earnings forecasts suggest that it will not suffer at all. For 2008, the market expects S&P 500 earnings to grow 15.1 per cent compared with 2007. This is partly thanks to an expected 26.6 per cent increase for the financials (aided by a low base of comparison). But all sectors are forecast to grow at least 7.2 per cent.”

“Analysts, it appears, do not expect even a cyclical slowdown in profits, let alone any negative impact from the financial crisis. But with surveys from the Federal Reserve and the European Central Bank showing that banks are tightening lending standards, it is impossible to take this point of view seriously.”

Excerpted from John Authers, “You Can’t Take the Market at Face Value”


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