The Week in Review - Uncovering Value Has Been Easy

'You pay a heavy price for a cheery consensus' is one of Warren Buffett's many prescient quotes and pretty much sums up the current period in markets. There is no consensus. Some market commentators are convinced that we are heading for a double-dip recession, others are pointing out that economic indicators are suggesting nothing more than a slowdown. US Corporate earnings growth is providing confidence while some US economic indicators such as consumer confidence, home building stats and retail sales are pointing to weakness. But I have been struck by how easy it has been this past several months to uncover excellent values and this week I revisit several value themes.

The S&P 500 Price-to-Earnings Ratio

Next up is a review of the more predictive price-to-10 year average earnings ratio on the US market (S&P 500 Index). Compared to the long-term average price-to-earnings ratio of 17.5, the US market is currently trading on 20.9 times its average earnings of the past ten years. This provides fuel to the bearish arguments that the equity bear market that started in 2000 has yet to run its course. Could the bears be right and what are the alternative arguments? This article is continued in the members area...

Abbey plc - The Reliable Tortoise Rather Than the Unpredictable Hare

I covered Abbey plc last week, highlighting that its shares were trading near its net cash value alone. That's highly unusual for a company with a history of managing its way through the notoriously cyclical housing market. The shares have moved up from 439c last week to over 450c this week but still offer excellent value. In terms of risks, there is no valuation or financial risk in Abbey. So we just have to decide on the business risk - when will the housing markets turn? I believe investors should leave that question to Charles Gallagher, Abbey's executive Chairman, and just buy the shares. Some revealing long-term charts on Abbey's progress since 1989 are available in the members area.

The US Global Consumer Franchises

Next, an update on the value on offer in the US global consumer franchise stocks. While the yield on the US government bond has been declining of late, the earnings yield on the franchise stocks has been rising. This makes no sense. If the earnings from the US global consumer franchise stocks are as reliable as the income from a government bond, and they have been in the past, then surely an average initial earnings yield of 6.8% plus the prospects of growth in that earnings yield from here is more attractive that a US 10-year government bond offering a 3% yield with no opportunity for growth. More on this in the subscribers area.

Does the UK High Yield Approach Offer Value at Present?

Continuing with the 'VALUE' theme this week, the current dividend yield available from the top 15 high yielding UK FT 100 stocks is 6.18%, which is at the higher end of the long term scale both in absolute terms and compared to UK government bonds, the risk-free alternative, which currently yield only 3.4%. This analysis continues in the subscribers' area...

A Low/Medium Risk Investment Strategy for a Self-directed ARF

In response to a request from a subscriber for an outline of a low/medium-risk ARF portfolio, I have outlined a possible asset allocation mix in the subscribers area. The current unusually low interest rate environment provides some real difficulties for an ARF holder. An ultra low-risk investment portfolio would yield very little income and presumably in retirement income is key. Hence, most ARFs have little choice but to gain some exposure to risk assets.....

Quote of the Week - David Dreman

''Few of us learn in a vacuum'' - David Dreman, Contrarian Investment Strategies, 1998

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