What Do P/E Ratios Mean for the Market in the Short Term? Not Much, Says Hulbert

Is the stock market overvalued? Undervalued? In the short term, MarketWatch’s Mark Hulbert says, it probably doesn’t matter. In an interview with MarketWatch’s Laura Mandaro, Hulbert says that the market’s current price/earnings ratio of 16.2 (using trailing 12-month earnings) puts it right near the historical average of 15.5, a “more or less neutral” valuation. P/Es based on average 10-year earnings, meanwhile, show the market to be substantially overvalued. But, Hulbert says, his research shows P/Es… Read More

Lowest of the Low-P/E Firms Post Big Outperformance

Numerous contrarian investment strategies have a track record of solid performance. But just how well — or poorly — do the most unloved stocks in the market fare? According to columnist and money manager John Dorfman, they have fared quite well in the past dozen years. In his Bloomberg column, Dorfman takes a  look at a virtual portfolio that, starting in 1999, would have invested in the 10 stocks with the lowest price/earnings ratios in… Read More

Shiller P/E

Fortune’s Shawn Tully recently looked at the Shiller P/E model (developed by Yale University professor Robert Shiller), which calculates the P/E ratio of the market using ten years worth of earnings (vs. just the earnings of the last 12 months). Currently, the market P/E based on the Shiller model is around 15, which is lower than it’s been in 20 years. The bottom line is the lower the P/E is when you invest the higher… Read More