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The surprising truth about US stocks

by , 28 November 2018
The surprising truth about US stocks
It's no secret that US stocks are flying.

Even if there's a small correction, share prices always seem to bounce back and keep going higher.
In fact, US stocks have gone up for almost 10 years now - without a losing year. This has led many people to think that they're extremely expensive.

But what if I told you US stocks are actually cheap?

You'd probably be surprised and call me crazy.

Well, let me show what I mean…

This one number tells a surprising story…


That's the price-to-earnings (P/E) ratio of the S&P 500 -  based on analyst’s estimates of stock market earnings over the next two years. This is also known as the two-year forward P/E ratio.

What’s surprising is…

The two-year forward P/E ratio today is below its average value going back to 1996.

How can this be after 10 years of rising US stocks?
The answer is simple…

Earnings growth.

Thanks to a resolute US economy, company share buybacks and Trump’s corporate tax cuts, US companies’ earnings are growing at an astounding pace.

And the consensus of analysts surveyed byBloomberg estimates this growth will continue.

Take a look...

Earnings are estimated to grow from 138 this year to a whopping 197 by the end of 2020, two years from now.

My point today is simple…

Don't let 10 years of gains in US stock prices cloud the truth

Thanks to crazy earnings growth, the two-year forward P/E ratio of stocks is below its average value going back over the past 22 years.

Those are the facts.

So it’s not hard to think US stocks could go even higher from today’s prices. 

And if you want to take advantage of the huge upside ahead, you can start with these two opportunities…
  1. A company that’s developed a cannabis drug proven to reduce seizures in patients with epilepsy that cannot be controlled with any existing drugs. It was recently approved by the US Federal Drug Agency and could produce from $900 – to 1.6 billion in annual sales for this company
  1. A global leader in medical technology, specialising in surgical products. Through decades of innovation, research and development, the company has created hip arthroplasty products that help restore patients’ ability to do normal daily activities. And thanks to this, this company has logged 36 straight years of growth. Today, it’s the world leader in Total Hip Replacement products.
Most people believe that – after 10 years of higher stock prices – stocks can't possibly go higher. The truth is, they can.

See you next week,

Joshua Benton

Managing Editor, The South African Investor

The surprising truth about US stocks
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