Tags: Paul | stocks | CAPE | investment

AllianceBernstein's Paul: 'Stocks Remain Best Game in Town'

By    |   Monday, 19 May 2014 01:31 PM

While some financial commentators warn of a bubble in the stock market, stocks actually represent the top investment choice now, says Joseph Paul, chief investment officer of U.S. value equities at AllianceBernstein.

Many of the bubble mongers point to Nobel laureate economist Robert Shiller's cyclically adjusted price-earnings (CAPE) ratio. This ratio, based on the past 10 years of earnings, has reached 25.3, compared with an average of 16.5 since 1881.

But, a peak behind the numbers makes "the picture look less grim," Paul writes in an article for Barron's.

Editor's Note:
These 38 Dates Are Key to Bagging $313,038


The CAPE ratio now implies earnings of about $75 a share for the S&P 500, he says. But that's 30 percent below the market's 12-month trailing earnings.

"A drop of that magnitude would take a recession-level collapse in revenues and margins. Is that a plausible expectation?" Paul asks.

"Much has also been made of the fact that profit margins are at record levels. But margins have been rising for nearly 25 years, and many of the factors levitating them — globalization, lower borrowing costs and lower debt balances — are unlikely to reverse any time soon."

Stocks are indeed expensive on a historical basis, he admits. But the key question isn't
whether stocks are attractively priced compared with history.

Rather, it's whether stocks are attractively priced compared with other investment choices now. The answer there is yes.

"From that vantage point, we'd say that stocks remain the best game in town," he argues

"In today's low-return world, where better than stocks to put your money?"

With the S&P 500 within 2 percent of its record high, many investors feel uncertainty about stocks. "We don't know which way the economy's going to go," Charlie Smith, co-founder of Fort Pitt Capital Group, tells The Wall Street Journal.

He said Fort Pitt owns both conservative and growth stocks. "We're trying to play both camps."

Editor's Note: These 38 Dates Are Key to Bagging $313,038

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While some financial commentators warn of a bubble in the stock market, stocks actually represent the top investment choice now, says Joseph Paul, chief investment officer of U.S. value equities at AllianceBernstein.
Paul, stocks, CAPE, investment
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2014-31-19
Monday, 19 May 2014 01:31 PM
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