Best Performing Dividend Model Over 25 Years Shows Market Possibly Moderately Undervalued

In the continued debate around the valuation of equities, one dividend model, as developed by  Investment Quality Trends, indicates that stocks are still moderately undervalued, writes Mark Hulbert for Barrons. Investment Quality Trends dividend strategy looks for companies that are likely to be able to sustain their dividend, as a result of their strong financial charateristics, and secondly, the model compares a stock’s yield to its historical yield (not the overall market). “When a stock’s yield approaches the high end of its range, for example, a stock is considered undervalued—and overvalued when at the low end of the range,” explains […]

Six Valuation Measures Indicate Market is Still Overvalued

Mark Hulbert opines in MarketWatch that “The stock market has to fall a lot further before the valuation indicators will be blowing in the direction of higher prices.” He looks at six valuation indicators and maintains that “recent weakness has simply worked off an extreme overvaluation.” Hulbert notes that current valuations are higher than at 71% to 89% of bull market peaks back to 1900. Specifically, he points to the following: Price/book ratio is at 2.6 to 1, which is higher than at 23 of the 28 bull market peaks since the 1920s. Price/sales ratio is at 1.1 to 1, […]

Median P/E and P/S Ratios Show Overvaluation

Ned Davis of Ned Davis Research told MarketWatch, “Median price/earnings and price/sales ratios higher than at peaks in 2000 and 2007 are clearly a concern.” The comment is based on data from the firm’s recent study, depicted in the graph below, that suggests particularly high overvaluation based on examining the median price/earnings and price/sales ratios of NYSE-listed stocks. The P/E ratio is 25.6, based on 12-month trailing earnings, and the P/S ratio is 2.16, both are significantly higher than at the peak of the bull market in October 2007 and the internet bubble in 2000. According to Davis, the current […]