Tags: Jeremy Siegel Here’s Why Stocks Will Go Higher

Jeremy Siegel: Here’s Why Stocks Will Go Higher

Thursday, 16 Feb 2012 08:24 AM

Stock bull and finance professor Jeremy Siegel has a simple explanation for why the market run of early 2012 is likely to continue: Relative to bonds, they’re a bargain.

The Wharton professor and author of the bestselling “Stocks for the Long Run,” Siegel bases his research on more than a century of data. He sees Dow 15,000 and maybe higher in the coming two years, perhaps 17,000.

If he is right, that would mark a 32 percent gain from Monday’s close.
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“I've seen stocks cheaper than this, but I've never seen stocks cheaper than this relative to bonds and I think that's a real positive factor for the market,” Siegel told Bloomberg Television in an interview.

The Dow Industrials are currently at a price-to-earnings (P/E) ratio of 14.36 with a dividend yield of 2.50 percent. The S&P 500 P/E ratio is 15.56 and the dividend yield is just over 2 percent.

Comparatively, a 10-year Treasury pays 2 percent and the 30-year yields 3.125. Investment gurus, including Warren Buffett and Jeremy Grantham, have gone out of their way to warn investors away from pricey bonds.

Meanwhile, analysts predict that the dividend yield on stocks is likely to climb as profits pile up.

Standard & Poor’s predicts the payout to rise as companies cease the cash hoarding that caused dividends to fall during the financial crisis.

“I expect the index will retake that high later this year and hit a new record,” Howard Silverblatt, senior index analyst for Standard and Poor’s indexes, told CNBC.

“I’m looking for $263 billion by the time this year is over.”

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2012-24-16
Thursday, 16 Feb 2012 08:24 AM
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