The stock market has soared nearly 12% in just 8 weeks since the election in November. The price-to-earnings ratio is now sitting at 25, which is about 60% higher than average; the average is 15. If the market is so overpriced, what is the next move overall? And, is it too late to get into the market? Here are some ideas on how to find bargain-priced gems in a market that is likely to sell off.
There are currently many different techniques concerning forecasting the market as a whole as well as
predicting future values of individual securities such as United States Steel. Regardless of method or technology, to accurately forecast the stock market is more a matter of luck rather than a particular technique. Nevertheless, trying to predict the stock market accurately is still an essential part of the overall investment decision process. Using different forecasting techniques and comparing the results might improve your chances of accuracy even though unexpected events may often change the
market sentiment and impact your forecasting results.
Predictive Modules for United States
Sophisticated investors, who have witnessed
many market ups and downs, anticipate that the market will even out over time. This tendency of United States' price to converge to an average value over time is called mean reversion. However, historically, high market prices usually discourage investors that believe in mean reversion to invest, while low prices are viewed as an opportunity to buy.
Please note, it is not enough to conduct a financial or market analysis of a single entity such as United States. Your research has to be compared to or analyzed against United States' peers to derive any actionable benefits. When done correctly, United States' competitive analysis will give you plenty of quantitative and qualitative data to validate your investment decisions or develop an entirely new strategy toward taking a position in United States Steel.
How important is United States's Liquidity
United States
financial leverage refers to using borrowed capital as a funding source to finance United States Steel ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. United States financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to United States' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of United States' financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the
breakdown between United States's total debt and its cash.
United States Gross Profit
United States Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing United States previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show United States Gross Profit growth over the last 10 years. Please check United States'
gross profit and other
fundamental indicators for more details.
Details
It is the beginning of the new year and a good time to assess where things are in the financial world. Specifically, I wanted to look at the U.S. equity markets. Since the November election, the Dow has been on a massive tear upward. The composite index has risen from 17,883 to just a whisper under 20,000, a move of nearly 12% in under 2 months time.
When you see this move on a chart, or just sit back and think about it, you have to ask is this an appropriate time to buy into any stocks seeing that there has been a dramatic move upward.
The answer to that question is the answer to any question: that depends. There is never a straight-line, linear answer to any question. It may be that the overall market is too high. But, it may also be that there are opportunities within any one specific equity.
Looking at the overall market the Price-to-earnings ratio is high. It is sitting at 25.83 at the time of this writing, although the stock market is off today, the first trading day of the year. The average over the past 25 years for price-to-earnings ratio is 15. That is 60% higher than average. If you consider the overall market, for the market to get back in line with the average, companies are either going to have to increase earnings markedly, almost 60% or the market is going to have to sell off back down to the average price-to-earnings ratio; that sell-off is going to have to be the same of 60%.
What do I really think is most likely? I think there is going to be a hybrid move of both scenarios, earnings will increase throughout the year while certain stocks will come down in price to more moderate levels.
When you consider a price-to-earnings ratio of 25, what are you really getting? Say you are looking at a stock trading at $100 per share. With a PE of 25, you are getting $4.00 per share in earnings. That means the current level of expectation of earnings for that company is merely $4.00. That is only 4% per year return on investment. While that is still above the current rate of most interest rates it is a very low rate of return overall.? There are plenty of stocks that are selling at better rates of return. So, why would you get involved in these higher priced stocks?
Most likely, professional traders, who are savvy enough to see the overall landscape of the market, will begin taking profits. This will push prices lower and lower. The market will sell off during this process. At the same time, lower-priced stocks, with lower price-to-earnings ratios, will see buyers step into the market on these stocks and keep the prices up. This whole process will not happen in just one day.? Nor will it take and entire year. So, there is going to be a balanced move in both the buying and selling.
There are plenty of opportunities in the stock market right now. But, you have to pick and choose what you are looking for. Considering where a stock is at this moment versus where it will be in a year is a tricky process. Look for companies that will more easily expand their bottom line in an economic landscape that is growing faster than expected. First tier companies are excellent staring points, versus manufacturing companies that will see new orders coming in from retailers.
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David Taylor is a Senior Member of Macroaxis Editorial Board - Sector Analysis. David is a professional writer who writes for multiple investment news outlets. His primary focus is dynamic movements in financial markets and effects of economic volatility on North American industries and sectors. David has many years of experience in financial service industry including working with major banks as a FX trader. In his free time, he does a lot of outdoors type activities including rock climbing, mountain biking, hiking, mountaineering and kayaking in the summer, and snowboarding in the winter.
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