The markets are charging higher as I write and, not surprisingly, that's got many investors wondering if the "fabulous five" tech stocks - Facebook Inc. (Nasdaq: FB), Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL), Microsoft Corp. (Nasdaq: MSFT), and Alphabet Inc. (Nasdaq: GOOGL) - that we talk about frequently are too expensive to buy.
Nope.
At least not if you understand what I want to share with you today...
...and use that information to spot winners perfectly suited for today's market conditions.
Markets Surge After French Election
I'm not surprised that global markets are on a tear following independent centrist candidate Emmanuel Macron's sweeping victory in the first round of French presidential elections. The CAC broke through a nine-year high on Monday to close at 5,268.85, while Germany's DAX shot through to all-time highs and settled at 12,454.98.
Macron is promising to give away everything but the kitchen sink.
Scratch that... including the kitchen sink.
As I noted on FOX Business Network Monday morning, Macron wants to bail out France, Greece, and anybody with a pulse, practically speaking. As part of that, he wants to reinforce EU commitments and the euro.
In other words, his victory implies more spending, more stimulus, and more handouts. And that, in turn, implies higher stock prices ahead.
Naturally the doom-and-gloom crowd is out in force...
...stocks are expensive
...what goes up must go down
...primed for a crash
...Trump this, Pence that
...the Fed, the ECB
...North Korea, Russia
In my best Jerry Seinfeld voice - yada, yada, yada.
Putting more money to work is exactly what savvy investors should be doing.
Things were much the same in 1999 and again in 2007, when legions of folks believed the run was over, that stocks were "expensive," and that there was "nothing to buy."
I wouldn't hold it against you if you wanted to head for the hills or bury your head in the sand like an ostrich with a sign on your rear end saying "kick me when it's over." Just make sure you understand the irony of your actions if you do.
To borrow an old expression, the more things change, the more they stay the same.
What I want you to understand today is that there is no more difficult time to invest than in a market that's doing very well for the hesitant or the uncertain.
The Most Successful Company in the World Was Once "Too Expensive"
Take Altria Group Inc. (NYSE: MO), for example.
The company was trading at or near all-time highs of $53 per share 19 years ago, which made it very "expensive" compared to other stocks. At the same time, legions of investors caught up in the excitement of the dot-com era found it boring. "Like watching paint dry" was a characterization I heard more than once from dollar-struck people enamored with the likes of Pets.com and Webvan.
Yet, Altria had a rock-solid business model and was tapped into the Unstoppable Trends we follow day in and day out around here.
Not only did this give the company huge profit potential, but it gave those very same investors the thing they craved most - the potential for huge returns, high current income, and stability.
Since then, the stock has returned 1,691.62%, earnings have grown by 1,712%, and yield is still a rock solid 3.3% that's grown by 58%. So much for the ole things are expensive argument, don't you think?
Today, I hear shades of the same thinking from thousands of concerned investors, especially when it comes to the big tech companies we talk about frequently.
For example, Amazon trades at a PE of 185, and Facebook trades at a PE of 42. By conventional metrics, both are extremely expensive.
Only neither is a conventional company, which is why conventional metrics often used to judge overall market conditions and the relative attractiveness of specific stocks don't apply. Research, in fact, shows that PE ratios have very little predictive value when it comes to identifying the most successful investments.
For that, you've got to look forward to Unstoppable Trends, to a company's products, to its competitive position, and to its customers.
Both of these companies can add a million customers at a click of a button or by merely releasing a few lines of code. That means they can grow into the P - price - while expanding the E - earnings.
What's more, they can do that no matter who's in the White House, no matter who's in Congress, no matter whether Wall Street is muzzled or not. That, in turn, means they're scaleable and potentially worth hundreds of billions of dollars more than they are today.
That's what most investors are missing.
They're so concerned with judging specific stocks by specific metrics that they fail to take in consideration the very real possibility that they may not apply in today's markets.
Let me give you another example that'll help put this in context.
Take a car maker - any car maker.
They make a four-wheeled contraption that hasn't changed since Karl Benz introduced his horseless carriage in 1885 - 132 years ago. What they sell is limited by what they produce, so the PE ratio, which measures a given stock's price in relation to its earnings, still applies.
You can argue that they can boost revenue by fancy financing, changing their R&D, or even reducing expenses. I would argue that, at the end of the day, they're still limited by the number of cars they can produce and sell to a finite customer base.
Remember, PE ratios don't account for growth, nor do they reflect the quality of earnings.
Many public companies can manipulate earnings (and do) in pursuit of higher stock prices. For instance, many publicly traded manufacturing companies boost their earnings by boosting their accounts receivable and counting them as "sales," even though there has been no value created and no related cash flow.
What matters - and what I want you to understand - is that most investors fear buying something that's expensive because they cannot justify it using metrics that are based on the past, and instead of reconciling why that may not be the best course of action, they give up.
Perma-bears don't help.
Every time the markets hit new highs, they come out to offer sage commentary and all sorts of rational for their thinking... which usually comes down to some variation of "it's expensive." The unwritten implication, of course, is that the markets are ripe for a fall and you'd be a fool not to listen.
Nouriel Roubini started calling for a massive market crash in 2005, and he got one... three years later... which means he missed the run up. And the correction... and another run up.
You may recall the name Howard Ruff. He wrote a best seller called "How to Prosper During the Coming Bad Years" and published it in 1979, right before one of the biggest bull runs in history. Ironically, he surfaced again in February 2009 with alarmingly bearish commentary... exactly one month before the markets began a legendary triple-digit run up.
Now there's a new raft of folks cautioning against new highs merely because they fear new lows... and, of course, because stocks are "expensive." Only thing is, truly great stocks like the fabulous five are never expensive because they grow into earnings.
More to the point, the best stocks are always making new highs, which is why you want to be constantly investing in them. That's how they work and how you make money.
People tell me all the time that this is a loaded statement, and they're right - it is - for the simple reason that even the gut-wrenching lows of 2003 and early 2009 were all-time highs when compared to the very same markets in 1990 or in 1980.
It's your perspective that changes.
Remember - the best companies never go out of style, and neither do the profits they create in your bank account.
P.S. I realize that shares of some of these prominent tech stocks are pushing above $800, but my team's uncovered a "backdoor play" that could grant you access for a fraction of that cost. I'd say this could be the easiest way to get stocks that might be "too expensive." To find out how to make sure you're not left behind - and to receive a report detailing how you can tap into this Unstoppable Technology revolution - click here.
The post Never Fear Paying Too Much For a Stock Ever Again appeared first on Total Wealth.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.