#Valuation drives the #market: which strategy for 2020 ?

“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.

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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).

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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.

 

It’s the #liquidity, baby

The correlation between the balance sheet and the stock market is clear, here expressed in terms of global #liquidity superimposed to the #S&P500.

Both the #ECB and the #FED have been injecting liquidity into the market which has resulted in the appreciation of #assets, rather than or only marginally in actual growth.

This is indeed the main argument against these “helicopter money” initiatives – that they result in #stock #buybacks rather than new investments aimed at growing the real economy.

How long can it last for ?

#Brystol-Myers Squibb predicts stellar #growth for 2020

Something must be stirring at #Brystol-Myers Squibb $BMY considering the projected #earnings growth for the next year. This #value company had done very little over the past years compared to the stock market until this past half of 2019. Going forward it predicts a significant #EPS #growth which makes its #PEG ratio <1. Overall it looks very promising considering it is also a generous #dividend payer.

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