Tuesday, August 18, 2009

What goes up... must come down...

All of the sudden, I find myself with increasing company in the bear camp. I don't know whether to dance the bear dance with my new found friends, or defect to the bull camp. But I'm pretty sure that I heard some dancing music warming up.

So the market is trading at 16.8x 2010 earnings. That seem extreme to anyone else? And not only does no one in the bull camp seem to expect any revenue growth this year, it seems like maybe not much is expected next year. So we're cost cutting our way to properity then? Right. Pardon my skepticism, but I just can't help myself - probably the fault of my parents that taught me that thinking for myself might not be such a bad idea.

I run a number of different valuation models that I've developed over the last ::bleep:: (substitute 'many', it will do just as well) years in the industry. Last night my earnings momentum model that usually gives me 100 or more stocks on which I can do more fundamental work rendered a list of ... wait for it... nineteen (19) stocks. NINETEEN. On another growth model that I developed over the past 3 years or so, a multifactor model that requires revenue growth to support the earnings growth, I usually get a list of 300+ names. This week? Right around 100.

So what can I take from this? As of right now, given today's valuations and earnings/revenue prospects for stocks, revenue growth is an almost extinct animal.

If you're good with cost cutting as the only way of getting out of this lovely little economic scenario, good for you. But don't use my money to invest, 'k?

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