Forum Archive Index - March 2001

["Mike Beal" <mike.beal@approved.co.nz>]

Thanks for that Peter, good article.  Reminds me of the so-called 'Nifty-Fifty' in the 70's in the States - people paid crazy pe's - although some of the p/e's were justified (many years later) the prices fell big time and didn't come back for about a decade after their peaks.

 

Mike B.

Mike -if you were enlightened with that book Contrarion Investment Strategies have a quick read of this piece from thestreet.com about how much the S&P500 is possibly overvalued in these times when growth is slowing.

 

The piece takes a look at General Electric whose P/E has risen from 23 in 1997 to be at 37 now. In that time earnings growth has been 14% per annum. As the story says GE is not priced for disappointment and even if it maintains earnings growth the author says there has to be a possible downside of at least 20% in the share price.

 

http://www.thestreet.com/comment/onthelevel/1316309.html

 

This thread started looking at Baycorp.

 

At December 1998's price Baycorp at a P/E of 27. The P/E has increased to it's current 50 odd. Earnings growth per share over the last two years of 21% and 12% with 15% expected this year.  Read the piece from thestreet.com and replace General Electric with Baycorp in the text.

 

We also don't always relate returns on shares to the returns on bonds. In the case of Baycorps case the income stream is earning 2% (as stated in the article the inverse of the P/E)  - government stock in NZ gives you nearly 6% plus guaranteed original investment back.

 

Interesting and thought provoking stuff - obviously the views of contrarian and value investors will be different from growth investors.

 

Cheers

 

Peter