PEG Price of Earnings Growth – a lot of red

One of my favorite ways to find “GAARP” Growth At A Reasonable Price, is with the PEG ratio. Price / Earnings to Growth ratio. Not just price of earnings, but leavened with a growth aspect. When you can get good earnings growth, at a reasonable price, and hold it, well, things grow and often folks start to ‘pay up’ for it and you get a double bonus.

So I looked at a PEG heat map. There’s a whole lotta red on this thing:

PEG ratio Heat Map 6 Nov 2015

PEG ratio Heat Map 6 Nov 2015

There’s a whole lot a red there, and not much green. (Click on it for a much bigger version)

AAPL Apple, C Citibank, F Ford, GM, GILD Gilead, FOX news class A, and Valero (honorable mention Marathon Oil).

Again, not a big theme. The consumer isn’t dead, and is finally buying an iPhone and a car upgrade and with cheap oil, driving somewhere for the holidays. Putting it on their Citi card. Oh, and FOX is a better deal than CNN, but even Time Warner isn’t dead in an election year.

Somehow I’m not ‘feeling the love’ that the economy will thrive and the stock market soar on iPhones, cars, and watching more TV. All on the credit card… nor that those trends can go on for a long time with nothing to back them up and The Fed stopping the morphine drip.

PEG around the world

Decided to tack on the PEG graph for The World. Some Japanese and Brazilian banks on Central Bank Stimulus. A drug company in the UK. China Life Insurance and Taiwan Semiconductors (for those iPhones?). Mostly a red heat map…

World PEG Heat Map 6 November 2015

World PEG Heat Map 6 November 2015

Even globally it looks like most stocks inflated in a bubble of non-value and The Banks posting unsupportable earnings on Free Money globally. Not the story I want to buy.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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8 Responses to PEG Price of Earnings Growth – a lot of red

  1. Jack says:

    How do you construct a PEG map? Use PEG myself and it is very effective.

  2. E.M.Smith says:

    At this site: http://finviz.com/map.ashx

    chose PEG from the dropdown menu that by default says “1 day performance” to get to this link:

    http://finviz.com/map.ashx?t=sec&st=peg

    Similarly you can change from S&P 500 to “world” and choose PEG or change to “full” for all stocks PEG:

    http://finviz.com/map.ashx?t=sec_all&st=peg

    but it doesn’t work if you choose “ETFs” as they don’t really have such a metric.

    And yes, I find it very useful and a good tool too!

  3. p.g.sharrow says:

    It appears to me that the wonderful uptick in car sales now is due to poor sales of the last 8 years that has resulted in a very aged car fleet that must be replaced, almost Free Money and Vast purchases by government agencies. Free Money also creates M&A activity for the sake of the bankers fee generation. Wall Street generating income now at the cost of wealth created in the future. That balloon is running out of gas as well.
    The makers of wealth must be able to invest and accumulate to grow the wealth for everyone that contributes. Real investors must be able to ride their investments over an extended period with some expectation of being able to enjoy the fruits of their forbearance. Corporate raiders that accumulate wealth unearned are thieves. Regulators that are into growing their bureaucracies for the sake of it’s growth are thieves of the worst kind as well. They are not only stealing wealth from the creators but preventing wealth creation as well…pg

  4. E.M.Smith says:

    @P.G.:

    Don’t forget that VW was selling at near cost due to their “oopsy”… and with interest rates at near zero a lot of the ‘on time’ folks were going for it as The Fed threatened to change that. I saw Honda? advertizing something like “60 months zero interest rate”… I.e. it is desperation coupled with ZIRP (Zero Interest Rate Policy)…

    I just ran through every “race” in the racing stocks tab up top (except India… something on it is broken…) and almost all sectors were crap. Transports had a couple of things (like NAT North American Tankers) that had some “lower left to upper right” to them, but things were very much an individual circumstance “filter”.

    Metals (ALL of them), minerals and energy and just about you name it, in the toilet. ZIRP driven and some limited Tech along with credit card companies rising. Rest Of World worse off.

    It just looks more like total crap than I’ve seen in a very long time. Not a crash (where you can short things) but just a bowl of slop that smells funny…

    I think I’m going to sit in cash a week or two longer till something starts to sort out. Maybe, and I do mean MAYBE, pick some well behaved things and swing trade them on a week to month swing basis. ( For some stocks and ETFs, the market maker tends to run it up a week, then down a week, then up, then down… and the ripples are fairly consistent. So you can put on a ‘Friend Of The Market Maker Trade” where at the panic bottoms, you put a ‘buy if touched’ a bit below his bid. He likes that as when a panic flood comes in, you help buffer it, but are out of the way for normal picking off the panic sellers. Similarly at the top when it gets thin, you put in a “sell at this price” just a touch (much narrower touch as volatility is lower at tops) above his quotes. He can sell his inventory then let the price float up to you and not be forced to short (yet). A bit tricky to get the price right if you start it late, but if just a bit early (when the limit is approaching but not reached yet) it can work.

    The market maker will often have a ‘ladder’ of bids and asks. So if price spread is presently $35.50 bid $35.75 ask in say size 500, they will also have a $35.25 bid at size 200 and a $35.00 at size 100, and similar to the upside. That way if if big order “hits their bid” some of it ends up at better prices as it blows through the different size / price sets. By laddering in with them, some of your “liquidity” is acting in their favor by preventing price from running too far on a big hit while letting them cream the center spread as they like. Most market makers don’t seem to mind some of that kind of order flow and tend not to ‘game it’ too much. ( i.e. suddenly you find bid and ask both jump just past your order to the side you didn’t want… so no trade and you need to pony up more to buy or get less on a sell… I’ve seen that often.)

    Yeah, I’m looking at THAT level of finesse to make something make sense…

  5. p.g.sharrow says:

    I agree that the next 6 to 8 quarters look to be strange indeed. I don’t recall seeing or even reading about long term near “0” interest with vast amounts of government over spending of borrowed money. The FED seems to be vacuuming the money out of the system as fast as it reaches the banks so little of it reaches the street to actually fuel the economy. They seem to be protecting governmental borrowers as well as keeping a lid on inflation. So what happens next, depression, stag-flation or runaway inflation??? My guess, Stag-flation as the government and it’s payees are are put on austerity to reduce pay out while assets are inflated to reduce relative debt burdens. This has already begun with a freeze in COLA adjustments.
    Over the last 6 years Republicans have been taking over state governments and cleaning up their balance sheets. Some of them might be in better shape than Democratic run basket cases. So a demonstration of what could be done is at hand.
    Right now, income producing Real-estate is beginning to look much better then anything else…pg

  6. E.M.Smith says:

    @PG:

    The Trouble with Real Estate: it is already re-inflated via The Fed to the point where it isn’t holding anymore. This ‘race’ of REITS shows that prices are not in an uptrend:

    http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?symb=rpt&compidx=aaaaa%3A0&comp=spy+psa+pcl+pei+bxp+hcn+hcp+vtr+pld&ma=4&maval=25&uf=0&lf=2&lf2=4&lf3=1024&type=4&size=4&state=15&sid=45596&style=320&time=8&freq=1&nosettings=1&rand=6529&mocktick=1

    The one I liked most (and that IIRC the spouse owns) Plum Creek Timber just got a multi-$Billion buyout from Weyerhauser, so my “go to” of timber that keeps growing even if the stock doesn’t has now been sucked up in a non-ideal place ( i.e. not a REIT and not so dividend oriented).

    PSA the Public Storage company, is on a roll, so maybe the “still got junk” trade?… not exactly the high point of my investment strategy…

    Maybe some “distressed” California farm land, based on lack of water… but that requires a change of Federal Policies (unlikely in my lifetime) and / or a change of drought regimen (also, IMHO, unlikely as California has Drought when it is Cold… and we’re headed into cold. Though there is a possible that it might take a few decades for the ocean to cool off and warm ocean / cold land could pump water inland…)

    Basically, when The Fed is about to stop handing out the crack cocain of free money, you want to avoid assets who’s price depends on the price of money being low, like anything with a mortgage or ‘time payments’…

    For long term effects of near zero or ZIRP, see Japan. They have been at this for a couple of decades now. Basically it is stagnation. The inflation is very low once the bubble is reflated (which happens in the first couple of years) and then you get to a “normal” growth rate of a 1-2% range but offset by the Central Bank trying to get a 2% inflation rate where their actions can no longer “stimulate” but instead cause enough angst for 1% to 2% of real investment to go elsewhere… In short, just stagnation. In Japan it is called the lost generation in stocks.

    Per The Fed vacuuming up the money it prints. Close, but not quite. Treasury issues bonds of about $Trillion over and above tax rake. These are sold to anyone in the world. Except not a lot of folks really want them at 0% interest and 2% inflation… so The Fed as “buyer of last resort” buys them (and / or takes them as ‘collateral’ from banks and brokers who bought them and need to have collateral for the 0% loans from The Fed). The Fed, having no ‘reserve requirement’ (unlike any other bank in the U.S. Banking system) just adds the bonds to its balance sheet and credits the provider with so many $$$ in their account; effectively creating $$$ out of thin air – they can do that. It isn’t really “printing” in the sense of printing currency, but the effect is the same. Having no fractional reserve ratio requirement on them (as opposed to the other banks) means they can make as many deposit / credit entries as they like. Now this “money” ends up either in the accounts of The Government or The Banks (folks who can do business directly with The Fed) and some in the hands of Foreign Banks.

    Now comes the fun bit: Thanks to things like “tighter lending standards” and “higher reserve requirements” and Dodd-Frank (that was an asinine not-quite-replacement for Glass-Steagall) that money does not get lent out to The Public. It sits in the banks. (“Why?” is a long discussion, but the crib notes form is that sitting on it doesn’t get your ass hauled in front of Regulators and doesn’t get you in jail. Lending it causes all sorts of grief with “oversight”. Then, too, The Fed is setting reserves very high, so by regulation large chunks of it have to sit in the vault.)

    So in the end, lots of “cash” is generated that mostly goes to very large “money center” banks that mostly lend it to the Very Best Clients (i.e. themselves and their friends) who mostly used it to puff up the paper asset bubble again (stocks and realestate) as that was the goal of the whole “financial reform” movement post bubble and crash. To reflate the investment portfolios of the very rich evil bastards and their friends, and those in Congress, but I repeat myself…

    So while your statement that The Fed is sucking out the money as fast as they create it is true in effect, it is missing some details. The Fed does the creating, but distributes almost entirely to The Government and Big Banks, who then use it for pork politics (i.e. lining pockets of Friends Of Big Government) or reflating paper assets (i.e. Big Bank Assets, and assets of Friends Of Big Government) with little to none of it ending up at street level where the “tax marks” live. BTW, money shoved into Real Estate and Investment Bank Leverage just ends up deposited back at the Big Banks again. Wash and repeat until paper assets are at the level you desire…

    The basic problem is that Goldman Saks and Citi don’t do a lot of lending to small home buyers in Indiana or farmers in Texas or some guy wanting to buy a truck to make deliveries in Jacksonville. Their big money goes to clients $Billions who want to do a bit of ‘carry trade’ in stocks, or would like to buy out 100% of Plum Creek Timber for a few $Billion. So that few $Billion go from (for example) The Fed to GS to WY who pay the shareholder of PCL (and a fat fee to GS and interest to the bank loaning the $Billions) or just as often do NOT actually pay the PCL shareholders but issue to them some new WY paper and leave the $Billions in the bank… showing a nice growing balance sheet… Those $Billions never touching “the street”. But borrowed from The Fed for free.

    Now since everyone has nice fat cash balances, they pass the Dodd-Frank ‘sniff-test’ and nobody is at risk. Since they are not in the ‘retail lending’ business, being investment bankers, they don’t have to worry about all those rules and regulations on things like red-lining and fair lending practices and whatever. Win-win… And The Fed has nice US Bonds on deposit as collateral while GS has a load of cash. Government gets money (for the bonds), GS gets money (fees and ZIRP loans reloaned at a nice higher rate), WY gets money (from GS) and the guy on the street gets a nice printed WY certificate to hang on the wall… and his PCL dividend ends… (It was about 11% when we bought it, IIRC, then prices rose and it was down around 5%. With the 16% jump in price today on the buyout news, its at 3.75%)

    Basically they made the rules for the purpose of inflating paper assets and that worked. They made the rules to make lending to The Average Joe very hard ( ‘to protect you’) so you don’t get much of that. It even has an impact on me. Prior to Dodd-Frank an investment adviser with less than 15 ‘clients’ didn’t have to register with anyone. Now that’s not true. This means I have to be even more careful to repeatedly disclaim offering ANY “investment advice”. All I’m doing is talking about economics and what I am doing for me with my money. It is unclear if my offering “investment advice” to my spouse counts… so I’ve not traded her account for her in a few years. (Which is why she still owns the Plum Creek… bought at the bottom of the crash as a very long term growth vehicle).

    So the end game is still the same. “The Little Guy” is out of business (who is going to take on the pain and suffering of SEC Registration to advise a dozen friends and / or starting out?) and who is going to lend to The Little Guy when that is just full of legal landmine regulations? MUCH easier to just ‘go with the flow’ and only lend to folks in $Billion chunks… and that money stays stuck in the banking system on corporate and investment bank balance sheets while the Federal Bonds end up on the balance sheets of The Fed, global Central Banks, and major corporations (including States) as “collateral” where needed.

    Just by a more complicated route…

  7. p.g.sharrow says:

    @EMSmith; nice dissertation on macro financial economics. Being a mouse in a world of elephants can get you stepped on!. Not my game.
    The real-estate of my experience is actually owning the land. Buying and selling. The only place where the little guy has equal or better opportunities then the BIG players. After many years, I see a window to play that game, opening again. REITs are set up to play the big game and the operator takes most of the up side while the “investor” takes the risk. Cheap money on long term leverage on income producing land is a twofer that can work for you quite well. The loan is the most valuable part. But it does take personal involvement…pg

  8. Power Grab says:

    Speaking of sucking the money out of the economy…isn’t that the real reason for Obamacare? It certainly isn’t going to help very many people keep up with their health care needs.

    Maybe it’s just me, but the refrain I keep hearing is that the overarching purpose of the policy changes of recent years has been to create an ever-larger class of borrowers. From cash for clunkers to large numbers of illegal immigrants to Obamacare with its ever-larger monthly premiums and deductibles…who can maintain their standard of living without going ever-deeply into debt? Of course, if one’s grandmother was the first female banker of the Bank of HI, and one’s mother did micro-banking in SE Asia, I guess one would expect banker-like behavior from the offspring.

    I heard one time that credit card companies calls those customers who always pay their balance in full: “deadbeats”.

    I also read a comment by an illegal immigrant mother that 40% of all the money they spend here is borrowed.

    I still want to know where all that money paid to firms such as Solyndra ended up going, since they went bankrupt.

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