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alstry (36.57)

PE ratio soon to be EXTINCT!!!!!

Recs

27

December 22, 2008 – Comments (15)

Its funny when I hear those idiot analysts say the market is cheap relative to earnings.  What is amazing is how few companies are going to have any earnings at all next year.  You are about to see some pretty amazing earnings reductions in the upcoming weeks.....based on Alstrynomics....which likes to look forward rather than backward.... even aggressive application of PE multiples will result in dangerously low share prices.

In case you think I am exagerating.......

HONG KONG (MarketWatch) -- Toyota Motor Corp. Monday slashed its profit, revenue and unit sales forecasts for the year ending March 31, blaming a shocking slump in the global automobile market and a sharp appreciation in the Japanese yen against major currencies. The automobile giant cut its net profit forecast by 91% to 50 billion yen ($556 million) from 550 billion yen, adding it will now make an operating loss of 150 billion yen, as compared with its previous projection of operating profit of 600 billion yen. The company also lowered its full-year unit sales forecast to 7.54 million vehicles from its reduced estimate of 8.24 million units in November.

91%!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!  and that is Toyota

Banks losing money, Builders losing money, Retailers losing money, Autos losing money

What kind of price do you put on negative earnings???????

 

15 Comments – Post Your Own

#1) On December 22, 2008 at 4:19 AM, DaretothREdux (36.77) wrote:

Now on this point I have no arguement. I have been telling people this very thing for over a month now whenever they tell me about how there are so many undervalued stocks in the market today.

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#2) On December 22, 2008 at 5:06 AM, falang1 (96.75) wrote:

You also can't assume Toyota will only make that much in the next five years.  I am looking at past earnings, cutting that in half, then seeing if the P/E is still attractive.  You have to have some guess as to future earnings.  I think for a good company, past earnings divided by 2 keeps me safe.  Just alter your number based on your risk tolerance.  So looking at Toyota at $64 their earnings in the past were around 8 per share so 4 per share would be a 16 P/E.  Not cheap enough for me.  Pass.

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#3) On December 22, 2008 at 9:53 AM, FleaBagger (28.19) wrote:

I'm sure that every company is going to lose as much profits as a car company. A recession will probably stop people from shopping at Wal-Mart, too, and stop people from buying food.

WE'RE ALL GONNA DIE!!!!

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#4) On December 22, 2008 at 10:07 AM, alstry (36.57) wrote:

Flea,

Now you are learning.  Actually, some businesses will lose a lot more than auto companies.  And yes, people are buying less food,  At least in dollar terms aggregately.  As people get fired and their wages are cut, they can't afford to buy as much.  It is not a very hard concept...but one that seems to have a hard time seeping into your head.

But it is encouraging that you can learn.....I wondered about that for a while....now I am much more optimistic.

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#5) On December 22, 2008 at 10:37 AM, mdabat (< 20) wrote:

I understand your point and it makes lots of sense, but you must remember that the auto industry is cyclical in nature, and that cars are expensive products that can be put off for some time. However, when you look at companies with products and/or services with an inelastic demand, their earnings will not be effected as much, and will most probably stay positive. Think of stuff you use frequently, cigarettes, alcohol, detergent, soap and medicine, and the companies that provide them. Those can save you from investing in companies with negative earnings in the future.

 Finally...the P/E ratio was deemed to be extinct during the dot com bubble too ;) 

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#6) On December 22, 2008 at 10:42 AM, alstry (36.57) wrote:

Becareful,

When times get really difficult, not the difficulty we have experienced over past few decades.....all of the items you mentioned suffer as well.  It gets to a point that it is not whether a business looses money, but how much a business looses.

There is a light at the end of the tunnel......it is just seemingly a long  long way off based on current policy statements.

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#7) On December 22, 2008 at 12:59 PM, johnw106 (63.16) wrote:

People seem to think the worst is over. Not so.

We are witness to a earthquake in the global economy. The first slip of the fault lines were bad. Lehman Brothers, Citi etc.
We havent seen the aftershocks yet. The aftershocks are the mechanism that bring down the citys, not the first slip of the plates at the epicenter.
Commercial real estate will be the next major aftershock. And you havent seen anything yet as far as bank failures go. Those are just getting started, and will be the third major aftershock after the commercial real estate begins to topple in a dominoe effect. Maybe as early as Febuary.

Food for thought. Notice how smaller banks are allowed to fail by the dozens,and are being bought up by the larger chains that are, lo and behold, charter members or prime broker/dealers of the Federal Reserve. Coincidence? I think not.
And if you think the US dollar will be allowed to fail, you sorely underestimate the power of the international cartel of theives who are the stockholders of the Federal Reserve system.
Do you think familys such as the Rothschilds, the Ednburghs and others will allow decades of scheming and power plays go down in flames now? When they are as close to their goal as they are? Never happen freinds.
He who controls the money supply controls the world and all that in it is.

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#8) On December 22, 2008 at 1:12 PM, mpapile (29.92) wrote:

I still think there are cheap stocks in this market.   Sure there are idiots out there saying oh wow this stock is trading at 5x pe when meanwhile their profits were all derived from people spending lots on credit and cheap debt.  However, companies with a lot of cash on hand and no debt that have products that will always be needed can be bought cheap here.

 What do you think, the world will be in a permanent slowdown of 50%+?  I think we will come back one day.  Just like we always do.  And then solid companies will come back and you will kick yourself for not buying.  

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#9) On December 22, 2008 at 1:13 PM, PaulsPile (70.13) wrote:

Very good points, johnw106, yet the Rothschilds, the Edenburghs and others have a limited number of keys in their pockets as well.  It is my view that the currency market is much too global for the Rothschilds.  When it crumbles, it will all fall.  The currency market is the current bubble.  We have exceeded our debt standard limits and are walking on paper.

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#10) On December 22, 2008 at 1:42 PM, MaskedMan2007 (99.37) wrote:

Negative earnings companies are normally considered as speculative plays.

In short, it means that there are still a lot of risk in the market these days and we should be very careful.

This could be a trap for the value investor buying a stock at a low PE when the profits could continue to slide next year.

I don't think it is still the time to buy aggressivly stocks. Take few positions, but do not invest 100% of your money!

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#11) On December 22, 2008 at 2:19 PM, angusthermopylae (40.72) wrote:

Broken record time--me, not alstry.  :-)

I'm with johnw106.  There will be many more "aftershocks" in various industries over the next year (at least).  As the pain spreads, it will take affect in places that a lot of economists just aren't expecting (there was an article yesterday where the economists are all asking "How did we miss this?" That's an argument for another day.)

People will spend less, companies will take bigger and bigger hits, and I think the P/E is a number that can be ignored for the near future.  An unwritten credo in the military is "Yeah, but what have you done for me today?"  The P/E is like that; it doesn't matter how you've done with respect to the past, it's today and tomorrow that matters.

The good news, in my opinion, is that it won't last forever.  We just bought a company vehicle today.  I had a long talk with the Chevy dealer (an old friend at a small rural dealership), and we both are taking the long view.  Hunker down for the next few years, and if we survive, we'll be in pretty good shape. 

He's not worried about GM going under (too much, that is).  Dealerships are at the relative bottom of the expenses list (after retirement funds, union wages, medical care), and it's the bigger, "crowded" dealerships that are costing them (GM would rather consolidate half the big city dealerships than close the occasional rural one, according to my friend.)

Extrapolated, it means that individuals and small businesses are spending less, putting off expenses, and cutting corners.  The bigger companies  are going to be taking the hits from these cutbacks; the tremors and failures will probably take some people by surprise.  On the other hand, people aren't just giving up and moving to [insert prosperous area/country].  So it will get better...just after a long dry spell.

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#12) On December 28, 2008 at 10:39 PM, PharonicFool (83.21) wrote:

Ok. Yes, I totally agree that stock prices may be currently not be as cheap as many think. And yes, earnings for a lot of companies will be terrible (some cos. earnings will be great) in 09'. BUT.......the world may NOT end Dec. 31st 2009! It may not even end by the close of 2010 or sometime therein. That being considered what of earnings in 2011, 2012? Are those earnings priced into stocks currently? How far in the future can you or anyone else predict? So while everyone is claiming doom and gloom right now, there are fantastic American companies with strong fundamentals, great management, and even healthy supplies of cash to ride the storm. Those are the same companies that will be here after this mess to give us all the goodies that we love so (or even basic stuff like food and clothes). Coincidentaly, those companies stock prices have been hurt by the broader market and their FY earnings priced in. So I'm going to Foolishly buy these companies while others fear the apocalypse of business and in the sunny glow of the next bull market, I'll already be at the beach while others are scrambling to pack their cars and face rush hour traffic and miss most of the party.

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#13) On December 29, 2008 at 2:20 PM, russiangambit (29.49) wrote:

Went to the mall yesterday, in Houston. There are so many people here, it is unbelievable. Did they not get the message it is a recession and they need to save the money? The sale is not that great, I haven't seen 60-75% off , only in a few places they had 50-60% off but not on everything. That tells me in Houston we still have a long unwinding to go through.

I am sure it must be different in Midwest.

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#14) On December 30, 2008 at 2:54 AM, jgseattle (29.79) wrote:

I look at P/E as a risk measure and I think the P/E people are willing to pay will drop along with the E so that will make for a tough ride ahead.

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#15) On December 30, 2008 at 3:22 AM, eynigma (< 20) wrote:

I see only one comment with a glimmer of hope here. Therefore I say you must all be wrong. I don't base this appraisal on economic metrics, I base it on personal experience. The majority opinion, if an overwhelming consensus, is always wrong. Especially if it involves negativity or cynicism. I will pay my money and take my chances, as I hope I am not stupid enough to think I can predict macroeconomic shifts. What a fools' game you all are playing here. Keep this up, and you will miss out on the initial recoveries, which is where the real money is at. Neither of us know when this will be.

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