By David Forest, editor, Strategic Investor
My Casey Research team holds weekly strategy calls. We discuss what we’re seeing in the markets… and the best investing moves for the coming weeks, months, and years.
This week, we zeroed in on some exciting stats.
A lot of investors are terrified right now. That’s understandable with the 26% plunge we’ve seen in indexes like the Nasdaq so far this year.
But if you look in the right spots, there’s big opportunity.
You just have to look at it the right way.
Take a Look at This Benchmark
Part of the reason for the Nasdaq’s big fall is valuations. Many tech stocks traded at towering multiples to profits coming into 2022. Even “regular” stocks on the S&P 500 reached historically high valuations.
Late last year, the average P/E multiple for the S&P hit 27.9x. That’s historically very high. The average for that index over the last 150 years is about 16x.
Looking at these numbers, it makes sense we’ve seen a pullback. But even with the recent drop, we’re still high. As I write, the average P/E is still over 20x.
This is a great benchmark. It’s a simple tool to determine whether you’re overpaying for a stock – or buying it on the cheap.
That’s what got us excited on this week’s call…
How to Tell If You’re Overpaying for a Stock
My colleague John Pangere is a seasoned value investor. For years, he’s been using metrics like the P/E ratio to spot great opportunities in undervalued stocks.
On our call, he was ecstatic. He’s found a great company selling at a P/E ratio of just 11x. That’s well below the historic average for large caps.
Better yet, this company is a captain of industry. It’s not some obscure name. I bet you’d know it immediately. There’s a good chance you use its home products regularly.
John is sizing this up as a coming pick for our Strategic Investor advisory. It’s a perfect example of great opportunities in today’s markets.
To be sure, a low P/E ratio doesn’t guarantee a stock will go up. It could get cheaper from here if the markets continue to lag.
But running this metric gives us confidence. We’re buying at a sensible price. If it went down further, there’s a good chance we’d simply add to our position.
Being a big name, this isn’t a company that’s going to disappear. It’s got strong cash flows to weather the storm and come out on the other side.
When that happens, we know valuations tend to revert to the mean. That would signal a big leap coming for this stock to pull back in line with “normal” P/E ratios.
Even more interesting are companies thriving in the current environment…
John cited another of our portfolio holdings that’s doing better than ever. It’s also a big name you’d recognize immediately.
That company saw a substantial rise in its revenues in the two years since COVID hit. The latest financials are better than ever.
The best part – this outperformer is also trading at a below-average P/E. Its rising performance and falling price is a classic setup for value investors.
Intrigued? Check out our advisories for John’s analysis… and all of his hand-picked winners for today’s markets.
Here’s One More Buying Sign…
This week, we also talked about “boots on the ground” techniques for finding undervalued sectors.
One of our incredible analysts, Konstantin Ogurchenkov, just returned from one of the world’s premier conferences on natural resources.
His report: the place was dead. Investors stayed away in droves. He even shared photos of the half-empty presentation halls.
That also got us excited. Historically, when investors lose interest, it’s the best time to buy. Conversely, when the halls are packed, it’s often a signal of the top in a market.
The data backs this up as a great time to buy into resources. Valuations on some of the premier mining and energy companies are low.
This month, I added a new energy play to my International Speculator portfolio that’s paying a 9% dividend yield. Investors sold off this company, and many others, to very attractive levels.
That yield is enough to beat inflation – a rare find in any investment these days. I also believe the energy sector is priming for a Super Spike. We get paid to wait for those big gains in the share price.
Whether it’s in the numbers or in the trenches, there’s value to be had. I continue to believe this is a great time… for the right companies.
Keep walking the path,
Editor, Strategic Investor
P.S. If you’re looking for a step-by-step guide to beating inflation… check out my message right here.
We’ll be bringing you all the details across our universe of advisories.