There seems to be certain stocks that are "liked" and other stocks that are "disliked" and this trumps any fundmental, financial analysis of the company's business prospects. Over the past 6 months, I've made a point of buying a number of stocks with very good business prospects (earnings, growth and low debt) and a low P/E ratio. Not only did these have low P/E ratios compared to the other firms in their field, but they were also lower than the average P/E in the market. None of these stocks have gone anywhere, while stocks of competitors doing similarly in terms of earnings, etc. have gone up steadily. CNBC has a guy who pops up every month or so, and runs a screener for these sorts of things, looking for the handful of stocks in the market that are underpriced (relatively low P/E), but have great fundamentals. He always has a long list of requirements in terms of earnings, growth, debt, high analyst recommendations, etc. All the stocks he has recommended over the past 6 months have done nothing, especially compared to their higher P/E competitors. The point of mentioning these screens is that the stocks are NOT lower in P/E because the companies are worse. It is simply that human beings will not buy the stocks, clearly for no rational reason. Today the screener guy popped up again on CNBC, and this time his screens required an unprecedented number of high criteria to be met, plus low P/E. Two stocks came through, and I pulled up a chart of the first one. It has gone down steadlly all day today. And, for the first time ever on CNBC, a stock mentioned did not go up in the 5 minutes after the mention ! CONCLUSION: Some stocks of good companies have lower P/E ratios, because people irrationally do not want to buy them. In fact, this may apply to most lower P/E ratios...
You can make money watching CNBC, but certainly not by believing anything that is said there. You can make money buying stocks that are mentioned and then selling them 15 minutes later. Anything mentioned by Faber as an M&A target works well. But back to the thread.... GOOG, APPL, and RIMM are all perfect examples, as they are the very opposite of "cheap". Add SBUX, and you have four stocks that are bought by everyone - because they use the products every day ! Most of the people buying $10 million in equities have a RIMM in their pocket, as well as an APPL Ipod, and they are drinking a SBUX while searching GOOG.
Don't turn off CNBC. You can always use them for breaking news and i found that to be very useful. But you can't always do what they suggest.
TC: I know exactly what you're talking about. You've stepped into the infamous, thick, deep sludge/muck that is known as the 'value trap.' I love value stocks, so I am very familiar with watching these sloths dwaddle, seemingly forever. One simple lesson I've learned (which will be obvious to any seasoned trader here, but I am not that seasoned) is that if you add value + growth together, which implies you are now looking at 'trending up sectors," you will be onto something much more promising. 50%+ of price action is being in the right sector. VLO is my value/growth play right now. I wish I was in industrial metals three years ago, and just stayed there. They look toppy now, but many have gone up 1000% in the last three years.
If we apply what I am saying to the Energy sector, then there are some stocks that go up more than others - not because of value or fundamentals. I don't know enough about Energy stocks to know where Valero falls...
Yeah, simply put to me by a freind after a sub-par second half to 2006 - "dont be a hero, buy whats going up"