The Stingy News Weekly (04/26/02)
The Markets This Week
DOW 30: 9,911 -3.37% with a median P/E of 36.0
TSE 300: 7,630 -3.42% with a median P/E of 32.7
The Value View
Dow at a P/E of 20: 5,506 (-44.4%) Poor Value
Dow at a P/E of 15: 4,130 (-58.3%) Fair Value
Dow at a P/E of 10: 2,753 (-72.2%) Good Value
TSE 300 at a P/E of 20: 4,667 (-38.8%) Poor Value
TSE 300 at a P/E of 15: 3,500 (-54.1%) Fair Value
TSE 300 at a P/E of 10: 2,333 (-69.4%) Good Value
"Consumers need credit: From car rentals to airline tickets, credit cards are a necessity. Most of us can't buy property without a mortgage. Add in the payments Canadians are making to car loans, student debt and lines of credit, and debt is clearly a way of life. And with interest rates so low, it's bound to get worse. No one's saying not to borrow, just make sure you're doing it the right way"
How much do brokers have to hide?
"Given the catastrophes that have slammed the securities industry over the past few months, it's no surprise that investor confidence has hit rock bottom. Enron is just the tip of the iceberg. In early 2002 a rogue Lehman Brothers broker was charged with bilking his clients of some $125 million over a period of years. Retirement accounts have been eviscerated by a series of shocking stock collapses--with analysts often screaming buy to the bitter end. Even with the inquiries by the SEC and several state attorneys general into analysts' conflicts of interest, investors can't help but feel that only part of the sordid story is emerging."
Rogue waves & standard deviations
"What we are seeing in the financial system is similar to what we are seeing in the natural world, which is the increasing frequency and magnitude of storms. As seen from the above list and frequency of crises, storms continues to grow and raise the possibility of one too many shocks to the system."
Dividends do matter
"What Modigliani and Miller proved perfectly in the 1960s was the proposition that under perfect market conditions, shareholders should be indifferent as to whether a company pays a dividend or retains the cash, since retaining the cash should just directly translate into future dividends. And of course, we have a perfect market. Everybody translates everything, sees through the way everything's expressed. There isn't any accounting fraud anywhere. There are no problems. The whole thing works beautifully. All is wonderful. Until you meet the real world."
Buy now, profit later
"Contrarian shoppers like my wife try to get more for less by going against the crowd. They buy straw hats in winter and toques in summer. Similar thinking has been applied to the stock market for decades by disciples of Benjamin Graham, the father of value investing. Graham ignored fads and loved overlooked companies that were trading at a discount to their book or net asset value. Such stocks provide a measure of safety and, if you're patient, can deliver substantial gains."
The trivia questions this week are:
Q1. Which S&P 500 company has the highest sales?
Q2. Which S&P 500 stock has the largest market cap?
Q3. Which S&P 500 company has the highest earnings yield?
The answers for last week's trivia questions are:
Q1. Which Canadian company has the largest market capitalization?
A1. Royal Bank (36 Billion)
Q2. Which DOW stock has the lowest P/E ratio?
A2. DuPont (10.5)
Q3. Which S&P 500 stock has the highest book value?
A3. Aetna ($68.3 per share)
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