Sunday, May 10, 2009

Chart of the Day

This is ridiculous.

Look at consumer discretionary. Explain to me how consumer discretionary can be trading at 33 times next twelve months earnings? Does anyone out there really think the consumer is all of sudden going to surge forward in a new wave of all out buying with abandon?

That is what you call the power of a short squeeze.


Anonymous said...

its because the expected e is really small not because the p is big. Trading consumer discretionaryies isn't intuitive in that way.

Market Seer said...

I think what your trying to say is because it is cyclical that PEs can get really big.

I wouldn't consider consumer discretionary that cyclical where you have trough earnings equal massive PEs. At least nothing like say basic metals. Steel stocks and say copper companies you want to buy when PEs are 75 or don't even have a PE because they are losing money. A true cyclical company. Not sure how much something like Family Dollar or Ross Stores or Cheesecake Factory would apply. Maybe though. Either way, I would guess consumer discretionary earnigns won't recover for a couple of years. So the fact this is a forward earnings estimate instead of a trailing one, price needs to drop to get that more in line. Finally, these stocks have been on a massive run. They were trading at around a 20 forward earnings numbers or less 2 months ago. Personally I don't think I would want to even consider something over a 15 forward earnings multiple.

The last really great time to buy retailers was 1994 and 1995. It was coming out of the 91 and 92 bust and the talk was of so much retailing capacity that the sector was really hated.