How's Earnings Season Coming?

Is your portfolio doing well during earnings? Anyone make any interesting picks? Anyone becoming increasingly anxious about the equity markets hitting unsustainable levels? If you're part of the last group, you're not alone according to a recent Bloomberg poll that found:

Forty-seven percent of those surveyed said the equity market is close to unsustainable levels while 14 percent already saw a bubble, according to a quarterly poll of 562 investors, analysts and traders who are Bloomberg subscribers. Almost a third of respondents called the market for lower-rated corporate debt overheated and most said stock swings will increase within six months, the July 15-16 poll showed.

I've read many comments on WSO noting that tech is exhibiting bubble like features despite the NASDAQ still below its dot-com peak. Also, it's tough to read financial news without seeing something about excessive valuations yet, as noted by Bloomberg, equity valuations today aren't anywhere near where they were in the 90s:

Equity valuations are not excessive compared to the dot-com bubble of the 1990s, according to Doug Ramsey, chief investment officer at Leuthold Group LLC. Using the average of six metrics such as price to earnings and sales, market valuations today correspond to levels in 1996, according to a study published by Ramsey last month.

That rally kept going until March 2000, when the S&P 500’s price-earnings ratio reached 30. The index lost almost half its value in two years during the subsequent bear market.

Where do you monkeys see trouble brewing? Anyone particularly worried? Or, is there still plenty of money left to be made?

 
Best Response

in the near term, who knows? if I had a gun to my head and had to bet, I'd say that rates at the short & intermediate end are pinned down in the near term because the Fed won't raise FFR by 100bps overnight, it just won't happen. without rates going lower, you shouldn't see materially higher multiples on stocks. what may happen is that treasury yields come up because the Fed is one of the few buyers out there (China being the other), but even then the yield curve can only get but so steep. as the yield goes up, your effective discount rate goes down so the multiple on stocks overall has to come down (may not happen immediately, I remember that markets can be irrationals longer than I can remain solvent), and this happens 1 of 2 ways: either through earnings growth (which I could see if employment continues to pick up), or through price declines (much less desirable scenario for sure). I don't know which one it will be, but I'm thinking that's what happens which leaves us with an unexciting market for the near term: either modestly up, flat, or modestly down.

all of that said, a few bargains should appear out of all of this. these markets are definitely a bit squirrely, EBAY repatriated cash and took a huge price hit because of temporary negative earnings, RAI & LO both tanked when merger talks begun, BOTH of them! people are selling Covidien for God knows why, it's being bought out (perhaps they think the deal won't close?). my point is just as always, seemingly meaningless news will move markets or markets will react the opposite way of a rational thinker, so even though as a whole I expect things to be mild while we return to a more reasonable multiple, there will still be bargains for those who are willing to do the work and look for them.

 

Seriously. Admittedly I know very little about the markets currently as I've been on vacation for the past few months, but I wonder how many people are basing their current view of the market's perceived over-inflation on the fact that we're barely 5-6 years removed from the worst economic downturn since the 1930s. I think people just want to be able to say "I told you so!" if the markets correct 10-15% or something like that in the near term. Who knows. I still plan on investing.

"You rarely have time for everything you want in this life, so you need to make choices. And hopefully your choices can come from a deep sense of who you are." - Mister Rogers
 

I'm getting crushed. I've never invested before so I'm learning as I go. I'm in it for the longterm though (plan on holding for at least the next 5 years). That Covidien price is absurd, Medtronic said it was going to buy it for 93.22 a share?! I'm guessing this is the reason why the price has been going down: http://www.startribune.com/politics/national/267437771.html

The error of confirmation: we confirm our knowledge and scorn our ignorance.
 

BBRY hasn't released earnings yet, but I got murdered on the AAPL and IBM deal. I lost most of my profits on it, but I genuinely think it will rebound soon and great earning will drove the price up substantially.

I recently sold out of all my MU right before it tanked today due to SanDisk's report which affected their whole market.

I'm very interested in how NFLX does on monday, because I think they are very overvalued already. If it shoots up after earning, I might short.

 

i don't see anything in the near term besides all out war that'll start the bear market. yes tech is overvalued BUT only the stupid on earning names like grub hub, twtr, yelp etc. look at msft, ibm, csco, etc and they're trading at low valuations.

biotech was getting bubbly but its come off its high. 3D printers and solar too..

i haven't been slaughtered by any earnings yet. initiated small positions in C and YHOO after earnings. C since its done with the litigation and trading below book value (btw 30% CAGR david tepper has second largest single stock position in this name).

Yhoo for the alibaba ipo. think YHOO is undervalued using SOTP. plan to sell before BABA hits the market.

Looking at BAC and waiting until their litigation trouble is done

 

Maybe solar as a whole, but there are some names in there that don't seem like they are entering bubble territory at all. Ex. CSIQ, when looking at 2014 estimates, trading at a p/e of under 10, and under 7 if looking at 2015 estimates. This is especially far from bubbly when considering revenue growth for fiscal 2014 is going to be around 65% YoY

 

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