Are you afraid that the stock market has passed you by? Are you one of the many who feel stocks are too expensive to invest in at present? Warren Buffett made his fortune by buying stocks at the right time and then for the majority of his investments he has held for the long-term. With stocks being in the midst of six-year bull market run, most investors think that the market is overpriced. But that is not always the case if you act as Mr. Buffett and look for the diamond in the rough so to speak.
One of the best ways to tell if a stock is overpriced is to look at the price to earnings ratio also known as the P/E. With most stocks the higher the P/E, the more expensive it is considered. While Amazon is a well-run growth company with an extremely high P/E. I know at one time the P/E was extremely high, and the stock was trading near $400 a share. But times have changed some, and there is no listed P/E as the earnings have gone negative and the stock is still trading at $370 a share. Now consider Apple that trades with a P/E of 16.7 and about $125 a share. Some consider Apple a mature company and other still view it as a growth company with an extremely low P/E.
Some sectors of the market are better values than others. Financial and utilities are two that have historic lows when compared to the S&P 500. The P/E for the S&P 500 is about 17 currently but prior to the 2008 collapse it was as high as 65. Many and oil companies sell with a P/E of 12 to 15 currently. While some of the companies may be worth, a look like Exxon others such as exploration firms may not be worth the look. Also, in my opinion financial stocks are risky despite having low P/E ratios due to their interest rate risks.
Look for good well run companies with low P/E ratios to consider for your portfolio. While some if not most stocks are considered expensive right now remember not all are. Some are very reasonably priced, and others are even downright cheap.
If you need more information or have, any questions feel free to contact me.
