“Stocks follow earnings”, says the old adage: even in this past 2019 which has seen great returns in multiple indices, it seems to describe the market behaviour well. If one compares the S&P500 earnings with the S&P500 growth, the correlation is quite clear and an indication that this growth is not unjustified.
On the flipside, can the same be said about the earnings themselves ? We commented before on the fact that earnings have partly been fueled by liquidity.
The PEG ratio of the S&P500 is much greater than 1 (with 1 meaning a future growth perfectly priced in the current stock value).
While earnings are the expected to grow also in 2020, a value investor will have to pick the right stocks to beat the market as the current P/E already appears to price in future earnings.
Even more now it is important to be a stock-picker. A recent example of a seemingly undervalued stock has been provided here.
Responsible Investor 