Which Stocks Are Cheap?

Across 4,888 US listed stocks, only the micro-est of micro-caps remain (historically speaking) cheap... do you feel lucky?

Source: Quantr.co

Comments

[KnuckleDragger-X]

Well do ya punk!

[Butter_cup]

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[johngaltfla]

Micro-caps? Why not just invest in hookers, better return unless she is infected.

[philipat]

What about the PM Miners?

[Rainman]

Here we go with that P/E nonsense again ...

[CHX]

Which? Gold stocks. They are cheap, real cheap.

[madcows]

would you buy stock in a commodity producer right now?

 I sure wouldn't.  Every producer is leveraged to the hilt, at the same time that demand is falling world wide.

There's a major shitstorm brewing all around the world.   Look out when that bitch blows.

[madcows]

Are bonds cheap?

What about commodities?

I'm thinking it's time to trade US fiats for some other currency.  The dollar is doomed, yet it keeps rising.

Hell, maybe some physical PM's.  Fuck the government and the FED.  May they be lynched.

[EscapeKey]

us corporate profit margins are at pretty much their all-time high as well - in the event that was to reverse to the historical norm of 6%, that'd be an increase in P/E ratio of close to 67% (20 ==> 33)

http://z822j1x8tde3wuovlgo7ue15.wpengine.netdna-cdn.com/wp-content/uploa...

[Not Goldman Sachs]

corporations can still fire everyone. That will increase their profits.

[slaughterer]

P/E no.  Money supply yes.  Nothing else matters.  

[Palladin]

A Ratio is a common and well know term we hear every day. Wall Street decided to hijack that well known term in an attempt to describe the relative value of one company to another.

 The Price Earnings Ratio (P/E) of a stock or any index is calculated by dividing the price by the earnings.

If you want to read up on the technical description you can find it here:   https://en.wikipedia.org/wiki/Price%E2%80%93earnings_ratio

Well, what’s wrong with that? Nothing, but it’s not a ratio. It’s simply one number divided by another.  Wall Street needs to give it importance so it calls this simple division the Price Earnings Ratio or simply P/E.

We are all familiar with PI, which is a real ratio, describing the relationship between the diameter of a circle and its circumference. If you know one of the values, you can calculate the other, because the ratio is always the same, and PI is a constant. Or put another way, a circles circumference divided by its diameter will always = PI. Always, for all circles. There are many other ratios when it comes to PI, but the circle is probably the most familiar one.

Another ratio is A² + B² = C² or the Pythagorean Theorem. It describes a ratio of the two sides (A and B) of a right triangle to the Hypotenuse (C). If you know any two you can calculate the third. The most common one we use every day is the 3/4/5 ratio to calculate a right angle. Measure 3 feet, on one leg, 4 feet on another and when the hypotenuse is 5 you have a 90 degree right triangle. It doesn’t matter if you use inches, feet, meters, miles, or light years. The ratio is always the same.

So why are we talking about esoteric mathematics, and what does this have to do with the Stock Market? Simple, it’s just more Wall Street hype.

If you take a look more closely at how the P/E (that’s how they refer to it) is calculated you can see some problems right away. The first are the components, both are variables. The price of a stock is a variable, as are the earnings that are generated. And that’s OK if you only talking about one stock. But when you take more than one stock, you get back to that A+B=C, X+Y=Z thing where you cannot take the sum (C) and compare it in any way to (Z). But that’s what they do on Wall Street every day when they calculate and then compare P/E.

The biggest flaw is when you try to calculate it as a real ratio. In the example of the 3” circle, I can take the circumference of any circle, and divide it by PI and it will give you the diameter of that circle. Exactly, every time, with every circle.And it doesn't matter if you measure the circle in inches, feet, yards, or miles.

Now try that with Wall Street's method of calculating  P/E. Lets say the earnings of IBM is 10.00 a share, and the computer group has a average P/E of say 14. Does that mean that the stock price of IBM is $140.00? Maybe. The only way to calculate a P/E is to divide the stock price by the earnings of that particular stock.

Even using an average P/E as suggested above will not even come close to the price of the stock using a P/E and the earnings. It only works one direction. Why? Because it’s not a ratio, it’s a Marketing gimmick. They like to smooth talk over the inconsistencies by saying that different companies have different P/E’s but when taken as a group they are pretty similar. Does that make sense? Circles anyone?

Another way around the P/E’s never matching up, is that the company will “grow” earnings so that the P/E will fall in line with their peers. Everybody nods their head like that’s really going to happen. It might, but usually it’s just something an Analyst will say to try to convince you to go out and buy or sell (generate commissions) whatever stock he is hyping that particular day.

There is no end to the ways the earnings (E) in the P/E is calculated. Some are outlined in the Wikepedia article. They come up with new ones every day so it’s hard to keep track of them. And to make it a bit more confusing, there are various ways to calculate earnings. There is EBIDA which stands for “Earnings before Interest, Taxes, Depreciation and Amortization”. Hard to believe but true. There’s no end to the gimmicks they come up with. Then there’s GAAP which stands for Generally Accepted Accounting Principles.  Well that makes sense, but a lot of times you will hear the term Non-GAAP which would mean not Generally Accepted Accounting Principles? And they say it with a straight face.

And here’s my favorite… Pro-Forma Earnings.

There was a boom in the reporting of pro forma results in the USA starting in the late 1990s, with many dot-com companies using the technique to recast their losses as profits, or at least to show smaller losses than the US GAAP accounting showed. 

The pro forma models the anticipated results of the transaction, with particular emphasis on the projected cash flows, net revenues and (for taxable entities) taxes. Consequently, pro forma statements summarize the projected future status of a company, based on the current financial statements. 

To illustrate how bizarre the Price Earnings Ratio can become, take a look at P/E’s of Amazon, Apple and Facebook. All three are household names, and command a very hefty stock price and are followed by countless Wall Street Analysts. Yet somehow the P/E’s of Amazon, Apple and Facebook differ by a wide margin

Does that make any sense, to have this “important” metric differ by such a large factor for such large well known companies? Common sense would say no. But you will hear it every day on Wall Street. Such and such has a P/E of “whatever” and that “whatever” is simply used to promote the stock the Analyst is trying to get you to buy.

Plain and simple.

Here are just a few examples of valid  ratios from this web site: http://www.1728.org/diamform.htm 

Notice that they all have an “=” sign in them. That’s because they are all mathematical equations.

There is no “=” sign in Wall Street’s calculation of the P/E ratio.

It’s just one number divided by another.