Research Articles

Why Our S&P 500-at-1254-Before-2011 Forecast Still Stands

Julie C - Tuesday, November 02, 2010

On September 5, 2010 we published an article on Seeking Alpha that suggested that the S&P 500 would reach 1245 by year end. This forecast was based on the S&P 500 trading at its 80 year historical normal PE ratio of 15 and a consensus earnings forecast for calendar year 2010 of $82.98. Below is the earnings and price correlated F.A.S.T. Graph™ dated September 1, 2010 that graphically portrayed our forecast based on the numbers. On October 29, 2010, Standard & Poor's Corp. updated the earnings estimate for the S&P 500 for calendar year 2010 to $83.62, or $.64 higher. As you can see from the chart below the S&P was at 1080.29 when the article was first published.

9/5/2010-Why the S&P 500 Should Reach 1245 by Year-End 2010 (Click to enlarge)

As you can see from the updated F.A.S.T. Graph below, the new forecast for the S&P 500 based on the updated increased earnings estimate has risen to 1254.22, or 9.52 points higher than the September forecast. Although these numbers are essentially the same, since the new forecast is only slightly higher, you can see from the graph below that the S&P 500 stock price (black line) is tracking the earnings justified valuation line (orange line) as forecast. Therefore, with only two months left the principle that earnings determine market price is thus far holding true.

S&P 500 20yr. Earnings Correlated to Price, 11/1/2010 (Click to enlarge)

Conclusions

One of the most interesting takeaways from the above graph is how the S&P 500's price earnings ratio has really not fallen below its 80 year historical fair value PE of 15. When the stock price fell precipitously it was due to a drop in earnings, not a reduction in the PE ratio. From this observation, it is reasonable to assume that the historical normal PE ratio of 15 is a pretty solid metric for investors to hang their hat on.

The big risk would be that earnings collapse rather than the PE ratio falling below 15. With the S&P 500 currently valued precisely at 15 times blended estimated earnings, it would seem that this important index is fairly priced today. It will be interesting to see how the next two months turn out and whether the earnings forecast of $83.62 holds and the 1254.22 level is reached.

Disclosure: No positions

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Comments
Post has no comments.
Post a Comment




Captcha Image


Testimonials


“I appreciate your work, Chuck. As a subscriber to FAST Graphs™, I use the tool to decide on whether to purchase additional shares of what I currently hold or to add a new holding. Your articles help me make full use of the tool and give other readers valuable information, if they take the time to learn. One of the biggest enhancements that I use is the FFO data added for MLPs and REITs.”


“When FAST Graphs™ were unavailable because of Hurricane Sandy, I realized how much I need them in order to make investment decisions.

(Wish I could be) Long FAST Graphs!!!”


“One more vote for the value of FAST Graphs™; just started a subscription to Chuck's great service (premium), and am having a ball analyzing so many stocks quickly.”


“I feel very ill-equipped to make investment decisions without Fast Graphs. :-)”


“Yesterday, I signed up for your F.A.S.T. Graphs™. It's a really amazing, valuable tool for checking over/undervaluation of stocks. Wish I had it years and years ago!!”


“Love the F.A.S.T. Graphs™: One glance and you know a whole lot.”


“About Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


"Chuck -- Your proprietary F.A.S.T. Graphs™ are a VERY impressive tool!"


“If there were an Investor Hall of Fame for people who have helped others with their investing, and sharing valuable information, you and your F.A.S.T. Graphs™ would get one of my selections.”


“I love Chuck's F.A.S.T. Graphs™! Well worth the price of admission for what he gives you.”


"Chuck - Thank you for your well thought out articles. I tend to be a visual type of person so I really appreciate the F.A.S.T. Graphs™ approach."


"Great article, as always! I always look forward to your articles, and am especially eagerly awaiting your next in this series. I find the F.A.S.T. Graphs™ extremely helpful."


“Your F.A.S.T. Graphs™ put all of this in a single artful picture and the accompanying spreadsheets hammer home the point.”


“I use the F.A.S.T. Graphs™ method to evaluate all of my ideas. I recommend it for individual investors, since it helps them focus on data and get past the many emotional arguments.”


“I recently subscribed to the F.A.S.T. Graphs™, and these articles are helping me learn how to better use them. They really do give you a good quick look at the valuations picture. A much needed tool!”


“I also always appreciate the clear-cut information provided through your F.A.S.T. Graphs™ and articles.”


“Thanks, Chuck, for your F.A.S.T. Graphs™. Each of these graphs is worth 1,000 words in describing a company's growth, consistency and valuation. Thanks for sharing your graphs.”


“Thanks, Chuck. Love the F.A.S.T. Graphs™! It makes investing so much more clear.”


“Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


”I am amazed at the usefulness of your F.A.S.T. Graphs™ and I plan on using them for a long time to come.”


“Chuck's F.A.S.T. Graphs™ will give you a tool to find those well chosen stocks...”


“Thanks for the F.A.S.T. Graphs™, Chuck. They are the best tool I've used.”


Recent Posts


Tags

MTZ dividends,earnings growth ORI COH ADM DIS SO ATW CSCO EK APD ABT WRLD consumer IBM EAT DFS COL BHP IR CAPE PSX KMT SHW KFT ITC MUR SYY stock research tool CRI HRL short ideas CAT BEN ACE DORM NLY market currents PNRA SCL VRTU APH JCOM OXY CHE PEG SWK C DTE NVS KMP PBI TWGP TE OII CPN FF market DOW CSL ED CTRX AMGN SNH NEE MGEE Utilities Sector ADT PNM IDA RCII MMM value investing IPAR GES HCI RRD NOG FAST HAS BKH NOC KR plots earnings ACI INTC DNB VFC machinery GD VZ UHS UNP LL SYT SON DTV LKQ PDFS CAM FLO ECHO PG BAX MDT SPY COP JRN GIS CLX XEL TIS LQDT CBU MTW BCOR OSIS SBUX POT TMP STE ONE ROSE FAST Graphs CTL DGX RTN ULTA DE PPL BR BG NC JWN CTG BOFI diversified machinery intrinsic value DGAS WAG ED:SCG earnings DMRC HRS WLP RSG,RTN BWLD RIMM SJM LO BRLI CKSW BRS TEVA COST NSR JCI WFC JNJ VMI PCP UNH BBBY SNCR QCOR ZUMZ SLW CTSH MGRC LLL CSX Dividend Ideas CBRL ARLP ADP DOV long-term investing RKT OKS TSCO AMCX PFG AFSI BMS BEAV STMP THRM ITW, TXT 3NSRGY FUL GMCR T WWW ALB Valuation LZB SYK BDX BAP ARRS CLF CAH FRED PRAA DVA REXX HP CHS AZZ HON MHP MCY SCG UL MNST dividends INWK stock research stocks FC PEP POR BCR BLL Utilities LEN MNR HSY KSS AVP AGLP AFL DHR TIF DTEGY BMRC ASNA CLX,EMR TU DPS GILD POM SPLS long-term growth Stock Research Analysis AMT FRAN ANDE LLY NKE MRK D TNGO economy WFM PNW KMB TEF AET food service MSFT GME JPM LXU POWR TGH Fundamentals investing for income,growth and income ODFL MHS macro DRI TRV TOT TNC CNSL GEOS investment GE IR, SHOO ACOM OKE INGR Telecommunications ETR Macro view DR technology NSC MO XOM GOOG CVS BWP CPB GWW LTM FTI,HTZ PNR BLK EMC DD BH FBHS FDO ACN AMZN CTCM UEPS PPG due diligence ENSG CB DAN CACC QCOM NSRGY AM MCD IBN APEI DELL retirement HNZ WEC GPS DLR EBAY BNS. COO WGL investing for income TEG: WEC: BOBE OGE HII HD SUBX NFLX earnings growth SILVER OUTR WIN SWKS URI RSG EMR, MMM GOLD AXP ESRX WST AVD BAC M AAPL AOS RDS.A CBI EXLS MATW PRGO EV FOSL PM DRC P CHD SEIC SU MIDD VVC CASY SIG CERN FCFS WMT RAI CLR TAC RMD KO SAM KO,CLX,CELG,JCP,GT,MSI,PEP,ED BA CMI ALTE ACM CVX EMR TWX FTR Market Outlook ESI ROST ORCL AEP SFG BCE V HE SLGN CELG LH UN AA ITW UTX FISV HPQ GT long ideas EXC GPC MSA stock analysis TGT MCHP CL ABC OHI CACI NPM INT K MKC LMT AZO PKG JSFT EE SXL MELI LOW PFE JAZZ EPHC PCLN RRC BBY MNTX XRX

Archive

Testimonials


“I appreciate your work, Chuck. As a subscriber to FAST Graphs™, I use the tool to decide on whether to purchase additional shares of what I currently hold or to add a new holding. Your articles help me make full use of the tool and give other readers valuable information, if they take the time to learn. One of the biggest enhancements that I use is the FFO data added for MLPs and REITs.”


“When FAST Graphs™ were unavailable because of Hurricane Sandy, I realized how much I need them in order to make investment decisions.

(Wish I could be) Long FAST Graphs!!!”


“One more vote for the value of FAST Graphs™; just started a subscription to Chuck's great service (premium), and am having a ball analyzing so many stocks quickly.”


“I feel very ill-equipped to make investment decisions without Fast Graphs. :-)”


“Yesterday, I signed up for your F.A.S.T. Graphs™. It's a really amazing, valuable tool for checking over/undervaluation of stocks. Wish I had it years and years ago!!”


“Love the F.A.S.T. Graphs™: One glance and you know a whole lot.”


“About Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


"Chuck -- Your proprietary F.A.S.T. Graphs™ are a VERY impressive tool!"


“If there were an Investor Hall of Fame for people who have helped others with their investing, and sharing valuable information, you and your F.A.S.T. Graphs™ would get one of my selections.”


“I love Chuck's F.A.S.T. Graphs™! Well worth the price of admission for what he gives you.”


"Chuck - Thank you for your well thought out articles. I tend to be a visual type of person so I really appreciate the F.A.S.T. Graphs™ approach."


"Great article, as always! I always look forward to your articles, and am especially eagerly awaiting your next in this series. I find the F.A.S.T. Graphs™ extremely helpful."


“Your F.A.S.T. Graphs™ put all of this in a single artful picture and the accompanying spreadsheets hammer home the point.”


“I use the F.A.S.T. Graphs™ method to evaluate all of my ideas. I recommend it for individual investors, since it helps them focus on data and get past the many emotional arguments.”


“I recently subscribed to the F.A.S.T. Graphs™, and these articles are helping me learn how to better use them. They really do give you a good quick look at the valuations picture. A much needed tool!”


“I also always appreciate the clear-cut information provided through your F.A.S.T. Graphs™ and articles.”


“Thanks, Chuck, for your F.A.S.T. Graphs™. Each of these graphs is worth 1,000 words in describing a company's growth, consistency and valuation. Thanks for sharing your graphs.”


“Thanks, Chuck. Love the F.A.S.T. Graphs™! It makes investing so much more clear.”


“Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


”I am amazed at the usefulness of your F.A.S.T. Graphs™ and I plan on using them for a long time to come.”


“Chuck's F.A.S.T. Graphs™ will give you a tool to find those well chosen stocks...”


“Thanks for the F.A.S.T. Graphs™, Chuck. They are the best tool I've used.”