Ghosts of P/Es Past


As 2013 winds to a close … and the Value Line Arithmetic Average soars some 34.2% over the trailing 12-months, we can be thankful that most of us benchmark against the S&P 500 (30.0%) or the Wilshire 5000 (31.1%).

30% seems like a lot … and it is.

But it’s still stock price recovery mode from the damage incurred during the Great Recession and I won’t be surprised to see/hear pundits like Jeff Gundlach out with remarks resembling “if the stock price advance in 2012 was unwarranted … 2013 redefined unworthy.” We’ll be taking a closer look at the internals of the surge (including the hint/nudge that when the Value Line average tops the others, there’s a pretty good chance the flaky stocks are churning — and they are/were.) We’ll also do the year-end close out with a look at the clarions and barometers next week.

But for now, the profitability forecasts for year-end 2013 (nearly actuals at this date) and the 2014 expectations are not all-that-great … and they continue to weaken.

What’s not weakening are P/E forecasts … and they’re getting frothy.

And that’s where the foundation for any house-of-cards is usually found. In the face of rising interest rates (supply-and-demand competition for stocks) that foundation could well be sinking sand.

Companies of Interest

Materially Stronger: Arris (ARRS), NuSkin (NUS)

Materially Weaker: Commercial Vehicle Group (CVGI), Fuel Systems (FSYS), Titan International (TWI), Bioscrip (BIOS), Alaska Communication Systems (ALSK)

Market Barometers

The median Value Line low total return forecast is 3.4%, unchanged from a week ago.

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