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10-11-2006, 03:40 PM
Yahoo Finance Investing Strategies
Motley Fool
What Do Valuations Mean?
Wednesday October 11, 12:41 pm ET
By Warren Gump
Editor's note: This investing classic from a former Fool was published on June 24, 1999 -- less than a year before the greatest bull market in history began to unravel.
As the U.S. bull market inches closer to the two decade mark, many people have de-emphasized valuation criteria from their investment strategies. The reason is quite simple: Over the past few years, taking valuation consideration into account has often not only kept people out of the best-performing stocks, but also left them with companies that have achieved seemingly meager returns.
Someone using traditional valuation tools like the price-to-earnings (P/E) or price-to-earnings-to-growth (PEG) ratios to evaluate stocks would have avoided market stalwarts stocks like Dell Computer (Nasdaq: DELL), Cisco Systems (Nasdaq: CSCO), America Online [now part of Time Warner (NYSE: TWX - News)], and Charles Schwab (NYSE: SCH - News). Over the past three years, these stocks have earned compound annual returns ranging from 69% (for Cisco) to 187% (for Dell). Instead of these hot shots, a value player might have purchased "old world" firms like Philip Morris [now Altria (NYSE: MO)] or Minnesota Mining & Manufacturing (NYSE: MMM). The compound annual return on these two stocks has been a relatively paltry 11% and 14%, respectively. We won't even talk about the poor saps who put their money in "small-cap" stocks, many of whom are sitting on losses.
Does the success of the high-growth stocks mean that investors should completely ignore value? A person considering valuation would probably have stayed away from Schwab this past January, because it was trading at 66 times earnings for the prior year. That "high valuation" (more than three times those of most other brokerage firms) hasn't stopped the company from rising another roughly 60% since its release of 1998 earnings. The stock is now going for 90 times earnings over the past 12 months. Similar tales can be told of the other high-flying stocks. While earnings for the companies listed above have been rising, their P/E multiple has been rising even faster.
complete article here... (http://us.rd.yahoo.com/finance/news/rss/story/*http://biz.yahoo.com/fool/061011/116058490411.html?.v=2)
Motley Fool
What Do Valuations Mean?
Wednesday October 11, 12:41 pm ET
By Warren Gump
Editor's note: This investing classic from a former Fool was published on June 24, 1999 -- less than a year before the greatest bull market in history began to unravel.
As the U.S. bull market inches closer to the two decade mark, many people have de-emphasized valuation criteria from their investment strategies. The reason is quite simple: Over the past few years, taking valuation consideration into account has often not only kept people out of the best-performing stocks, but also left them with companies that have achieved seemingly meager returns.
Someone using traditional valuation tools like the price-to-earnings (P/E) or price-to-earnings-to-growth (PEG) ratios to evaluate stocks would have avoided market stalwarts stocks like Dell Computer (Nasdaq: DELL), Cisco Systems (Nasdaq: CSCO), America Online [now part of Time Warner (NYSE: TWX - News)], and Charles Schwab (NYSE: SCH - News). Over the past three years, these stocks have earned compound annual returns ranging from 69% (for Cisco) to 187% (for Dell). Instead of these hot shots, a value player might have purchased "old world" firms like Philip Morris [now Altria (NYSE: MO)] or Minnesota Mining & Manufacturing (NYSE: MMM). The compound annual return on these two stocks has been a relatively paltry 11% and 14%, respectively. We won't even talk about the poor saps who put their money in "small-cap" stocks, many of whom are sitting on losses.
Does the success of the high-growth stocks mean that investors should completely ignore value? A person considering valuation would probably have stayed away from Schwab this past January, because it was trading at 66 times earnings for the prior year. That "high valuation" (more than three times those of most other brokerage firms) hasn't stopped the company from rising another roughly 60% since its release of 1998 earnings. The stock is now going for 90 times earnings over the past 12 months. Similar tales can be told of the other high-flying stocks. While earnings for the companies listed above have been rising, their P/E multiple has been rising even faster.
complete article here... (http://us.rd.yahoo.com/finance/news/rss/story/*http://biz.yahoo.com/fool/061011/116058490411.html?.v=2)