IF YOU MEET THE VALETUDINARIAN IN THE ROAD...:

Key Index Of Stock Value Says Buy Now: Low Price-Earnings Ratio Doesn't Tell Whole Story (Tomoeh Murakami Tse, 2/03/08, Washington Post)

The U.S. stock market has rarely looked more attractive -- at least according to one important measure.

After a precipitous fall over the past four months, stocks in the Standard & Poor's 500-stock index are trading at a little over 15 times their earnings for the past year, the cheapest level since March 1995. Priced so low, many of the stocks are tempting to bargain hunters. [...]

The last time P/Es were as low as they are now, the market subsequently took off. The S&P 500 gained 29 percent in the year after P/Es hit their low in March 1995. And consider this: Stocks on average historically trade at 17 times earnings, a little above the current 15 times. If stocks were priced at that historical level, the S&P 500 would be trading more than 9 percent higher than Friday's close, according to Howard Silverblatt, senior index analyst with Standard & Poor's.

It's always amusing to hear folks who claim to understand economics lecture us about how we oughtn't borrow money from the Chinese at 3% to but stocks that are going to rise 10%.

Posted by Orrin Judd at February 3, 2008 11:17 AM