Regarding today’s 380-point drop in the Dow, it might be a buying opportunity, says Scott Black, head of Delphi Investments in Boston, and a member of the Barron’s Roundtable, who was kind enough to talk with Stocks to Watch this afternoon by phone.
The Dow’s drop is “a vote of no-confidence in the global banking system,” said Black, with little leadership, he thinks, from Washington and Brussels.
“The U.S. economy’s corporate earnings are excellent, and the Fed Reserve has just raised its estimate for GDP growth,” points out Black — meaning, there should be little to drive a 400-point sell-off. But, “The Western World can’t seem to align itself.”
As for what to do as an investor, relax, says Black: If you’re really investing over two or three years, you should be just fine.
The Standard & Poor’s 500 Index is trading at about 15 times the $71 estimated in per-share earnings for the 500 companies this year, which is “moderately undervalued,” says Black.
Of course, one has to bear in mind that financial services firms account for a 16% weighting in the S&P earnings, notes Black, and financials are a little concerning because, as he sees it, “The banks are under-reserved against losses,” which makes their estimates less believable.
Even so, the estimate for next year for the S&P 500 is $80 per share.� Using that metric, the S&P really is undervalued at just 13 times.
“There’s lots of good companeis trading at single-digit multiples,” Observes Black, including chip-equipment maker Novellus (NVLS), trading at just 6 times price-to-earnings multiple, after accounting for cash-per-share, or disk-drive maker Seagate (STX), at 4 times.
“These are really good companies with solid balance sheets with single multiples,” Black marvels.
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