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When Hope Triumphs Over Reason: Energy Sector Stocks Most Expensive Since 2002
With earnings tumbling and outlooks collapsing for energy sector names in the US (and worldwide for that matter) there is only one way to keep the "wealth creating" dream alive in stocks... the magic of multiple expansion (or hope over reality). As Factset points out in its latest report, the forward 12-month P/E ratio for the S&P 500 now stands at 16.6 - leaving the energy sector at its most expensive since 2005.
The current forward 12-month P/E ratio of 16.6 is now well above the three most recent historical averages: 5-year (13.6), 10-year (14.1), and 15-year (16.1). In fact, this week marked the first time the forward 12-month P/E has been equal to (or above) 16.6 since March 14, 2005. On that date, the closing price of the S&P 500 was 1206.83 and the forward 12-month EPS estimate was $72.65.
Back on December 31, the forward 12-month P/E ratio was 16.2. Since this date, the price of the S&P 500 has increased by 0.2% (to 2063.15 from 2058.90), while the forward 12-month EPS estimate has decreased by 2.2% (to $124.04 from $126.87). Thus, the drop in the “E” has driven the increase in the P/E ratio to 16.6 today from 16.2 at the start of the first quarter.
What is driving the decrease in the forward 12-month EPS estimate? At the sector level, the Energy sector has witnessed the largest decrease in the forward 12-month EPS estimate of all ten sectors during this time frame. Since December 31, the forward 12-month EPS estimate for the Energy sector has dropped by 27.3% (to $25.69 from $35.35). No other sector has recorded a decline in the forward 12- month EPS of more than 1.6% over this period.
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As a result of this decrease in the forward 12-month EPS estimate, the forward 12-month P/E ratio for the Energy sector has increased to 22.4 today from 16.6 back on December 31. The Energy sector now had the highest forward P/E ratio of all ten sectors in the S&P 500. How does this 22.4 P/E ratio compare to historical averages for the Energy sector?
The current forward 12-month P/E ratio for the Energy sector is now well above the three most recent historical averages: 5-year (12.0), 10-year (11.9), and 15-year (13.6). In fact, this week marked the first time the forward 12-month P/E for the Energy sector has been equal to (or above) 22.4 since April 8, 2002. On that date, the closing price of the Energy sector was 225.15 and the forward 12-month EPS estimate was $10.05.
It is interesting to note that despite the decline in the forward 12-month EPS estimate for the S&P 500 (due to the downward revisions to EPS estimates in the Energy sector) over the past few weeks, analysts are still projecting record-level EPS for the S&P 500 for three of the next four quarters. At this time, the Q3 2014 quarter has the record for the highest bottom-up EPS at $30.09. While industry analysts in aggregate predict that earnings for Q1 2015 ($28.35) will be below this record-level EPS, they believe EPS for the S&P 500 will exceed $30.09 in the following three quarters (Q2 2015 – Q4 2015).
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Therefore, if analysts were not still projecting record-level earnings over three of the next four quarters (including the downward estimate revisions in the Energy sector), the forward 12-month P/E ratio would be even higher than 16.6.
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Interesting, when gold dropped mining stocks were mutilated
Bingo. Imagine this headline:
"Gold Sector Stocks Most Expensive Since 2002"Which works, assuming "most" means "least"
IBB 1000 pe.....new ATH TODAY PERFECT
LOL, and they keep touting about it being cheap.
Keep lying until it works.
in the midnight hour...
with a rebel yell...
I still got some Dow10k hats available at a special ZH member price.
in the pinhead art cashin size only no doubt
"When Hope Triumphs Over Reason"
Can also be used to describe getting married more than once...
Here's an EarthCam from Wall Street (NYC) if you'd care to watch the Bull get snowed under:
http://www.earthcam.com/usa/newyork/wallstreet/chargingbull/?cam=chargin...
or Mulberry Street (Little Italy)
http://www.earthcam.com/usa/newyork/littleitaly/?cam=littleitaly
Some haunting images from Little Italy.
Thanks.
Can't figure it. Are analysts imagining Russia will have to cut off EU's gas, and EU will then have to buy from Exxon and Shell?
the crappiest stocks always go up the most. haven't you been paying attention?
What's not to like about Shitpotle?
And Herbilife, Netflix, Priceline, howsabout some Trump properties?
Oil will be at $70 by year end. Chinese were riding bikes in the 80s. In case you live in a cave, they are now driving cars in which the last time I checked use gasoline.
Stateside.
" Yes, for the foreseeable future the Brent crude price should stay above $100 bbl. .....
....... PRD Energy Inc. (PRD:TSX.V) is one that we follow"
http://www.theenergyreport.com/pub/na/where-is-caseys-marin-katusa-stash...
Date: 08/12/14
Of course energy stocks will sky rocket, remember scarcity from first grade school.
And this works both ways, energy and stocks.
Scarity (or not) is in the eyes of the guys making up the fictional supply and demand numbers.
That is why I said both ways... .
The problem with P/E ratios is that they get calculated off the 10-Q's -- then ignore 9,000 people beng laid off.
so market fundamentals are in play again?
Financials are cheap. Long Goldman Sachs, wells fargo and JP Morgan, joining the dark side.
So p/e's can go to fifty then!
I mean seriously....just don't short and you won't be one of the 99% who not only have missed this entire rally but have actually LOST MONEY.
Dividends are being raised...sure this bull is long in tooth...but the cost of shorting has gone up.
Some companies are absolutely slashing their dividend...cliffs etc.
That's a huge amount of Federal spending and it sure looks to me like we're at war with Russia.
That says to me big increase in treasury notes and bills in the offing....