Talking points on this podcast:
- Overvalued stocks and undervalued stocks: Where do we stand?
- US equities, coronavirus, and the hit to earnings
- Is a contrarian view a good investment strategy?
In this episode on Trading Global Markets Decoded, our host Martin Essex is joined by Jesse Felder. Jesse began his professional career at Bear Stearns, and later set up a multi-billion-dollar hedge fund before founding market analysis platform The Felder Report. This time, we explore the topic of overvalued stocks and undervalued stocks, as well as the fundamental chaos surrounding the equities market. You can listen to this podcast by clicking on the YouTube link above or by using one of the alternative platforms listed below.
Overvalued stocks and undervalued stocks: Where do we stand?
The conversation begins on the subject of overvalued stocks. Jesse says that when looking at any long-term valuation measure, like the CAPE (Cyclically Adjusted Price-Earnings) ratio or market cap to GDP, the US stock market is one of the most highly-valued markets on the planet. “The price you pay determines your rate of return, so when you pay an expensive price, you get a poor rate of return and vice versa.
“So focusing on US stocks right now, you’re probably going to get poor returns going forward over the next several years to a decade, and when there are opportunities overseas it makes sense to look there.”
US equities, coronavirus, and the hit to earnings
Have US stocks taken into account the likely hit to earnings caused by coronavirus?
“Not even close,” Jesse says. “I think earnings probably will decline at least 20%, if not 30%, and that they’re not going to rebound any time [soon]. With stock prices essentially flat year over year, and earnings declining significantly in double digits, there’s a disconnect between stock prices and fundamentals.”
Jesse was however ‘extremely bullish’ in late March, believing there were potential opportunities with undervalued stocks. “There were a lot of really cheap stocks at the time, especially in the smaller cap space, but generally with the broad market… the market is trying to look through to an earnings recovery next year, but the stock market normally discounts earnings six months in the future.
“I think six months from now we may say that today is a lot worse than the market was discounting six months ago.”
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