sales Archives - the patient investor

May 2, 2020May 2, 2020

No V-shaped Recovery

Initial jobless claims in the US for the 6 weeks to April 25th exceed 30 million.

Initial Jobless Claims

That will take unemployment above 20%, with total jobs falling to levels last seen in 1997, and more job losses still to come.

Total Employment (Nonfarm Payroll)

Employment is the key to economic recovery. While unemployment is high, consumer spending will stay low and the economy will struggle. Companies may receive bailouts and the Fed will keep financial markets awash with liquidity but that does not help falling sales.

Be prepared. April employment numbers are going to be ugly. Expect some turbulence.

February 4, 2017

S&P 500 Price-Earnings suggest time to buy

The forward Price-Earnings (PE) Ratio for the S&P 500, depicted by the blue line on the chart below, recently dipped below 20. In 2014 to 2105, PEs above 20 warned that stocks were overpriced.

We can see from the green and orange bars on the chart that the primary reason for the dip in forward PE is more optimistic earnings forecasts for 2017.

S&P500 Earnings Per Share and Forward PE Ratio

We can also see, from an examination of the past history, that each time forward PE dipped below 20 it was an opportune time to buy.

History also shows that each time the forward PE crossed to above 20 it was an opportune time to stop buying. Not necessarily a sell signal but a warning to investors to tighten their stops.

Sector Performance

Quarterly sales figures are only available to June 2016 but there are two stand-out sectors that achieved quarterly year-on-year sales growth in excess of 10 percent: Consumer Discretionary and Health Care.

S&P500 Quarterly Sales Growth

Interestingly, apart from Energy where there has been a sharp drop in earnings, sectors with the highest forward PE (based on estimated operating earnings) are the defensive sectors: Consumer Staples and Utilities. While Consumer Discretionary and Health Care are more middle-of-the-pack at 16.7 and 15.4 respectively.

S&P500 Forward PE Ratio by Sector

December 9, 2012

Phoney recovery?

First signs of recovery after a recession are normally rising earnings, initially from corporate cost-cutting but followed up with rising revenues.

With massive central bank pump priming — referred to by Mark Mobius here — this time may be different. Flows of new money from central bank balance sheet expansion are likely to find their way into the stock market — and even the housing market — driving up prices. But consumption is lagging with slow growth in employment and average wages. With lackluster sales growth, earnings are likely to remain sluggish. Which means inflated stock market valuations and high price-earnings ratios as stocks are driven into over-bought territory. Not a solid foundation for a sustained recovery but another rung up the ladder of risk.