Oh, how quickly the market forgets.
After a blowout earnings season, the S&P 500
Based on historical averages, stocks look nearly as cheap as they've been in the last 25 years. The S&P 500 has averaged a P/E of 25 and a median of 21 in that period, and its current trailing multiple of 14.5 is at a low not seen since the late 1980s. Flip it around and the forward P/E looks even better at 12.2.
Of course, stocks don't operate inside a bubble; they're always competing for investments with other financial vehicles. In a recent Gallup poll, Americans said they believed the following would make for the best long-term investment:
- Gold: 28%
- Real estate: 20%
- Stocks: 19%
- Savings accounts: 19%
- Bonds: 8%
Sounds like a hung jury. Let's take a look at some of the alternatives and see why the stock market looks like the best bet.
Treasury yields have sunk to 60-year lows. The benchmark 10-Year T-Note
Dividend stocks, on the other hand, offer much better returns as payouts continue to rise. The S&P 500 currently sports a dividend yield of 2.16%, and not since 1958 has the index's dividend yield beat treasuries.
Flipping houses ain't what it used to be
Investors seem to have learned their lesson from the housing boom and bust of the last decade. A house is a place to call home, not a get-rich-quick scheme. Even with mortgage rates at all-time lows, the housing market is still searching for bottom. Nearly four years after the bubble popped, there's still a glut of foreclosed homes on the market that ensures that national home prices won't be spiking anytime soon. Don't get me wrong: A smart real estate investment can certainly deliver huge returns, especially if it's in a developing or gentrifying area, and rental property can pay off as well, but with so many states awash in speculative housing, real estate is not going to beat equities.
Sorry, you missed the gold rush by about two centuries
I've never understood the gold obsession. Sure, I like shiny rocks as much as the next guy, but as an investment it never really made sense to me. To be fair, as the SPDR Gold Shares ETF
In essence, investing in gold seems like a bet that either time travel will be invented in our lifetime (I'll leave the possibilities up to your imagination) or that all the treasuries in the world will run out of ink at exactly the same moment. I'm totally comfortable taking the other side of that bet.
Show me the money
In the aftermath of the financial crisis, corporations trimmed the fat, boosted productivity, and improved efficiency, lifting profit margins to record highs. Those improvements won't be undone, meaning every additional dollar in revenue will be even more valuable to shareholders as more of it goes to the bottom line.
U.S. corporations are also hoarding record levels of cash, with non-financial companies holding around $2 trillion. By comparison, the market value of all publicly traded companies in the world is estimated to be $50 trillion. All that cash in the bank, which belongs to shareholders, means that the multiples you see are artificially inflated. Apple
Investors may keep worrying about high unemployment at home, the billowing European debt crisis, and China's growth slowing, but there are still plenty of opportunities in the stock market. And it's clear from the numbers above that corporations have enough cash to make it through a year's worth of rainy days.
Don't forget dessert
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