Stop shorting the market already

It seems people are getting increasingly concerned about the value of the market. We’ve had a great bull run since 2009, and I think the general consensus is that this run surely cannot continue. There’s plenty of macro fears out there, especially in regard to how governments are tinkering with the system and racking up unsustainable debt.

According to Stockopedia, the PE ratio of the market is 14.2 – a very middle-of-the-road figure. Dividend yield is 2.8%, and earnings growth is expected to be 13.8%. Now, admittedly, the growth will be analyst estimates, which tend to be systemmatically overstated. But let’s say that growth will come in at half that: 7%. So total return might be expected to be a little less than 10%. Let’s call it 5-10%. This is, as they say, better than a poke in the eye with a plastic flamingo.

OK, it’s not 20%, but then what do you seriously expect?

To put things in a little context, pub chain JDW (JD Wetherspoon) released an IMS today showing like-for-like sales up 3.7%, and total sales up 7.6%. They anticipate opening 40-50 pubs this year. And all this despite the fact that there’s apparently no future in pubs.

Analysts are expecting double-digit growth for the next 2 FYs, and it’s on a PE of 15.4.

I own some JDW – and upon reflection, I would be better off owning some racier shares. Maybe JDW will outperform the market, maybe it will underperform. But for all that, the numbers on JDW do not look frothy.

Then we have companies like supermarkets, which are on low double-digit earnings multiples, and dividend yields over 4%. No-one’s going to shoot the lights out by buying shares in them, but they still ought to provide a decent return. They look like good buys for the dividend investor.

Everyone is drawing parallels with 1999 and 2007/8; but there’s still value out there, I would suggest.

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About mcturra2000

Computer programmer living in Scotland.
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One Response to Stop shorting the market already

  1. Great post Mark. Agree with your assessment. There is still a lot of value out there. I like undiscovered niche retailers such as Crawshaws.

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