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S&P 500 and Value Line® P/E

Today, the Moody’s Baa corporate bond yieldis at 6.23 per cent, which would suggest a fairvalue P/E of 20. However, the 65-year aver-age Baa bond yield is 7.50 per cent, which isequivalent to a 16.67 fair value P/E. While it’smore conservative, we think in today’s envi-ronment we are better off using the long-termaverage as it helps to smooth over marketextremes. In other words, it helps preventus from using P/E ratios and other valuationstandards and assumptions that might not besustainable in the future. Remember, a yearago the bond yield shot up to 9.49 per cent andtoday it is 6.23 per cent!Over the past couple of weeks the Value Line median P/E has ranged between 17 and 17.5 and the Baa yield hasranged between 6.11 per cent and 6.35 per cent. So we be-lieve that just on today’s numbers there is still some upsidein the market, maybe as much as 30 per cent over the next12 to 18 months. But that is on today’s numbers. If we nor-malise the yield and use the long-term average, the US eq-uity market as a whole is closer to the upper end of its fairvalue and on this basis we believe it has just 5 per cent to 13per cent upside.

Over our 35 years inbusiness, one of the best ways we have found to measurewhether the US equity market as a whole is cheap or expen-sive, is to study the relationship between the Moody’s Baa(investment grade) corporate bond yield and the median(mid-point) P/E of the 1,700 stocks found in the Value LineInvestment Survey. Throughout this time we have watchedthis relationship weekly and found it to be an excellent proxyfor the average stock. The reason this relationship is impor-tant is because stocks and bonds are always in competitionfor investor dollars, so monitoring this relationship helps usto arrive at what we would consider to be the best fair valueP/E ratio, given the current interest rate environment.

If all national energy and climate goals are reached, this value is lower by 25%, and by 60% if the world gets on track to limit global warming to 1.5 °C.

the only way to stop the crime of Crisis is put an end to oil and coal consumption and zero emissions that's what science 00:50:35 is telling us and this means that Capital linked to oil coals and gas should lose its value

Revenue multiples are how much VCs, investors, and ultimately, an IPO and public markets will value each dollar of revenue

What metrics do you focus on when evaluating stocks? 

Valuation