The difficulty of investing right now is that most people know which businesses are growing fast and have bid up the valuations on these stocks to the 30-40x earnings range so it is difficult to determine whether the inevitable P/E compression will be more than offset by the high earnings per share growth rate.
Elsewhere, many of the stocks that are attractively valued on a P/E ratio basis tend to have very low growth right now, thus making it unclear whether they’ll outperform their loftier valued counterparts.
I suppose this is always the tug-of-war that exists, but it seems especially heightened right now for two reasons: (1) high-growth stocks that used to trade at 25x earnings now trade at 35x earnings, making it less obvious whether one should just “shut up and write the dang check” and (2) the businesses with slow growth right now can’t rely upon the excuse of poor overall economic conditions and therefore support the more obvious conclusion that they are not very good businesses under the theory of “If you cannot grow your business from 2013 through 2018, under what economy can you?”
These general concerns aside, it is still possible to find the blue-chip stock here and there trading at a valuation that should auger quite well for future outperformance. I just now profiled a 5% dividend yielder that I believe has a very fair possibility of delivering 12-16% annual returns, which you can access here on Patreon.
Originally posted 2018-10-21 02:18:05.
