Saturday, June 2, 2007

Current Markets P/E's Show Room to Run

Much has been said of the run up in the past twelve months of both the Dow and the S&P to all time highs. But, even after this impressive run, are the stocks in those averages more expensive than last year, or are they still bargains? When you have components lime Alcoa (AA), Altria (MO), Caterpillar (CAT), Hewlett-Packard (HPQ) and Boeing (BA) all trading around their all time highs, should we be worried?

Dow Jones

Current PE= 18.1
Last Year PE= 21.11
Current Earnings Yield= 5.53
Last Year Earnings Yield= 4.74


Current PE= 18.42
Last Year PE= 17.74
Current Earnings Yield= 5.43
Last Year Earnings Yield= 5.64

So, where does this leave us? The DOW, even after it's run is at the present time cheaper than it was at the same time last years on both a PE and an earnings yield basis.

The S&P 500, while slightly more expensive that the same time last year the difference is negligible so it is essentially flat.

All this means is that the large cap Dow is currently cheaper than a year ago, so if you believe earnings and the economy will improve later this year, there is still plenty of room for the Dow to run. The S&P 500, while just about equal to last year, is in the same boat.

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