Tuesday, July 21, 2009

S&P500 top 30 snapshot

AlphaNinja - On the heels of Goldman and Credit Suisse upping their price targets (substantially) for the S&P500, a look at the index' largest constituents is in order.

The top 30 weighted S&P500 stocks account for 42% of the index, so we can get a pretty good valuation read by looking at these.

-->> Average Price-to-Sales of 2.5 is a 23% discount to the 10year average for these stocks. Given the state of our economy that doesn't sound like much a discount...

-->> Average PE on 2010 earnings is 13.4, but we've seen some big earnings beats lately. These earnings estimates may prove to be conservative. Net out (balance sheet) cash per share and that PE is cheaper at 12.1times.

-->>FCFY (Free Cash Flow Yield) based on 2010 earnings is 7.6% - not nearly as cheap as the March lows, but this is certainly higher than what most of these firms would pay to borrow money.

Another valuation to use would be the PE10 developed by Robert Shiller. His data smooths out earnings over 10 years so as not to use peak or trough earnings. Unfortunately the "E" in his PE data right now is overly skewed by aggregating huge financial sector losses, making the index appear more expensive than it is.

The market is ready for a breather over the short-term, but I would not be surprised at all to see it pick up speed into the end of the year and hit or exceed the recent 1050/1060 targets applied to it.

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