A word of caution from Morgan Stanley’s equity strategists:
« The latest burst of Tech outperformance has not been accompanied by superior EPS trends. Just now Tech shows few signs of stopping (or even slowing); for example: i) post its largest 1m outperformance versus the S&P since 2012, the NASDAQ is now 2.7SD above its 12M relative average; ii) 80% of constituents of MSCI ACWI’s IT index outperformed the market over the last month, the highest breadth reading since 2003. Amid all this euphoria we’d encourage investors to keep a close eye on EPS trends as the latest burst of price outperformance has not been accompanied by EPS outperformance. »
It seems investors have started noticing.
P/E remains one of the most used metrics to value stocks. It is very easy to compute. But it’s not always easy to interpret. « Most investors fail to have a clear sense of what a particular multiple implies about a company’s future financial performance and don’t understand how multiples change over time », according to Michael Mauboussin and Dan Callahan in a report published in 2014 by Credit Suisse (this article is mainly based on their note which you can read here).
Short answer: Not Many.
Facts: Cash & cash equivalents at Berkshire Hathaway (BRK) reached $116 billion at the end of 2017, compared with $86.4 billion at the start of the year. Per Morningstar’s Gregg Warren estimates, Buffett finds himself with « around $90 billion in dry powder that could be committed to investments, acquisitions, share repurchases and dividends. » Continuer la lecture de « What Options for Buffett Who Has $90 Billion To Invest? »
Nomura expects Malaysia equities to return 4% in 2018 and says stock picking will be of the utmost importance to outperform.
The positive view from the broker stems from a number of factors, listed in a report dated Jan 22: « 1) solid macro and consumption growth, 2) continuing foreign inflows amidst positive revisions, 3) better corporate balance sheets with dividend upside, 4) possible election rally, 5) likely net buying by local institutions, 6) Malaysia’s laggard performance vs peers, 7) key concerns on banks getting addressed, 8) an appreciation MYR. »
The brokers set a 2018 year end target of 1,900 points for KLCI index.
Here are 3 slides from the latest « Where to Invest Now » published by Goldman Sachs’s David J Kostin and team. There sum up his views on US equity market going into 2018 and the most interesting one is the following, because it helps understand what an « exuberant » market would look like, if history was to repeat itself.
Despite tight or reasonable valuation, equities still make sense for JPMorgan.