Sun, Feb 26, 2012, 7:31 AM EST - U.S. Markets closed

Stocks Are Cheaper Than They've Been in Two Decades

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^GSPC1,365.73999+2.28

U.S. stocks are trading at their cheapest levels since at least 1990, according to such commonly used valuations as price-to-earnings and price-to-book ratios as well as dividend yield, Bespoke Investment Group says.

This realization will lift the S&P 500 Index (INDEX: ^GSPC - News) by 11 percent to 1,400 this year or maybe more, according to the research firm's 2012 outlook report.

"The S&P 500 is currently trading below its historical average P/E and P/B ratios, and these ratios are also at their lowest levels in the careers of a large percentage of money managers," wrote strategists Paul Hickey and Justin Walters.

"While the current level of earnings is by no means guaranteed, the economic backdrop in terms of the US economy remains stable to positive," they added. "There is no denying the fact that the recovery has been tepid, but the manufacturing sector has been a pocket of strength, while the employment picture is really beginning to show improvement."

The S&P 500 is already on track to reach or exceed this forecast, up more than four percent in 2012. Better-than-expected economic data and an emerging bailout solution in Europe are behind the gains.

To start 2012, the benchmark had an earnings multiple of 13, the lowest since 1990 and below the 80-year average of 15, according to Bespoke. It would take a move back to 1,484 to get the benchmark back to this long-term mean P/E.

The price-to-book ratio is 2.05, below the average since the late 1970s of 2.43. To get back to that average P/B, the benchmark would need to increase to 1,491.

One more valuation-dividend yield-points to above 1,400, argue the two strategists.

"At the end of 2011, the S&P 500 was yielding 13 percent more than the 10-Year US Treasury," wrote Hickey and Walters. "Outside of the credit crisis, the last time the S&P 500 yielded more than the 10-Year Treasury was before 1960."

They added: "In order for the dividend yield to get back to its historical average relative to US Treasuries, either the 10-Year yield would have to rise back above 2 percent, the S&P 500 would have to rally to 1,410, or you would have to see some combination of the two."

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More From CNBC
 
  • J EDGAR  •  Charlotte, North Carolina  •  1 month 3 days ago
    Gosh. I guess this means we should all be buying stocks. I will discuss it with my broker when he gets out of prison.
  • Andreus  •  1 month 3 days ago
    is a rotten apple cheaper than a good one?
  • DANIEL B  •  Hartford, Connecticut  •  1 month 3 days ago
    Headline should have read, "Calling all suckers to the rally thats starts tomorrow!" Big boys are running out of suckers for the pump and dump.
  • Anonymous  •  Los Angeles, California  •  1 month 3 days ago
    Sounds like a lotta bitter E*Trade novice traders posting here who blew themselves up trading.
  • A Yahoo! User  •  Santa Clara, California  •  1 month 3 days ago
    I'd invest in the stock market if I could borrow a few hundred billion at 0% interest and use it to drive stocks up and down.
  • nobody  •  1 month 3 days ago
    They really try every nonsense possible to sugar coated stocks to bring in new sheep for slaughtering.........
  • ?  •  Algonquin, Illinois  •  1 month 3 days ago
    The Wall Street media is pumping out the propaganda to lure in new suckers for the slaughter. Ma and Pa have learned their lession over the past decade and refuse to give their savings away to these con artist again. Even in the worse of times the Wall Street media kept slinging out the crapola that the mortage crisis is nothing to worry about. When the selling became rampant the media blitz was on stating that this was just a bump in the road. On the CNBC business shows they found all kinds who would bare face lie about what was actually happening. Now, today, we hear all is good and full speed ahead. We see Europe in free fall mode with unsettled debt concerns and maybe a recession. We see a Federal Reserve that is propping up the stock market with policies that are a determent to the average saver as they promote risk rather then safety. We see a dysfunctional government more worried about reelection then compromise and governing. We see a population where 10% of its citizens control 90% of the wealth of this country. We see a well lubed Defense Establishment media spreading manure warning about cutting the over inflated defense budget at the expense of every senor citizens health and social security check. This country is in a hurt locker and the ones who have locked us in are the cronies on Wall Street buying and selling our politicans.
  • JG  •  Webster, Minnesota  •  1 month 3 days ago
    Someone please shoot the messenger
  • maogs  •  Miami, Florida  •  1 month 3 days ago
    somebody is screaming for the little investor to jump in so they can get out and run like bandits.That heading sound like ....."it is the best time to buy we are running out of land"......and we all know what happen after that.
  • Jeff  •  Jacksonville, Florida  •  1 month 3 days ago
    The Market has almost doubled since it's low in March of 2009. You can't tell that buying GE at $6 back then was at a higher valuation that today at $19. These guys are just pimps that write this pablum. 1990 sure, rights, that's the ticket.......
  • TxNonPoliticalType  •  1 month 3 days ago
    Folks, they get PAID to run these "articles". Werd.
  • yahoo user  •  Peoria, Illinois  •  1 month 3 days ago
    and they are about ready to become much cheaper yet!!!
  • DrBobNM  •  1 month 3 days ago
    this is a sure sign of a top in the market.
  • richards  •  Santa Clara, California  •  1 month 3 days ago
    the reason stocks are "inexpensive" now is simply a reflection on how over priced stocks were 20 years ago. We are now in the 12 th year of a secular bear market. Look at Cisco, over the past 12 years its sales and profits have gone up by about 50%, while it's stock price has lost 70% of its value. Any stock that overpriced was a piece of crap, not the company but its valuation mind you, at the time it was recommended. And, the SEC and FINRA and everyone else involved in regulating the markets, know about this, but can't do anything about it, because, market liquidity is more important than truth. And, it is very difficult to prosecute someone for having an (allegedly) "honest opinion" no matter how unreasonable that opinion may have been at the time it was made.

    Just remember this, that the SEC's mission about maintaining investors confidence in our securities market is not really accurate. Their main mission is to keep the flow of money going between firms, investors, and companies, because market liquidity is dependent on that. The reality is that is "buyer beware" which means, don't believe anything you are told, unless the firm will back it up in writing. Just ask your adviser to put in writing whatever they tell you about themselves and their track record, the future as they see it, and watch the excuses fly for not complying with your request. And, then tell your advisor you would love to do business with them, but if a dispute arises, instead of being forced to go to FINRA to arbitrate it, let's go to JAMS or the American Arbitration Association, some neutral forum, and that will be the end of the relationship. A
  • DrBobNM  •  1 month 3 days ago
    I wish we could post links in yahoo comments. Bespoke in Oct 2007 were recommending stocks, and making the point the recessions were getting shorter. These guys are either Keystone cops, or looking for suckers to provide liquidity to exit their positions. Be VERY wary of these guys.
  • Woody  •  Austin, Texas  •  1 month 3 days ago
    To quote John McEnroe: "You cannot be serious!"
  • DeerHunter46  •  1 month 3 days ago
    "Pump-n-Dump"
  • K  •  1 month 3 days ago
    Same article was recently discovered in January 1999 and 2008 archives. :)))
  • mmmmooooo  •  1 month 3 days ago
    The Cartel, aka BESPOKE is a member, has created a new standard of legal accounting fraud, " OPERATING P/E ! instead of reported earnings, the biggest CONJOB since the 401K.
  • keithb  •  1 month 3 days ago
    They're not cheap if people can't buy their goods or services. Lots are still priced too high.
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