Cautious Optimism: An End of Year Present

Posted on December 27, 2011
Filed Under Fidelity Funds, Investment Strategy, Personal Investing, The Economic Scene

Let me make my final blog post for 2011 an upbeat assessment of where we might be headed.

My optimism stems from a fascinating chart I came across in a financial industry publication (Nick Murray’s Interactive, Jan. 2010). Based on statistics compiled by Intrinsic Research, the chart looks at the stocks that make up the S&P 500 – but with all financial stocks removed. (Those would be banks, insurance companies and REITs.)

The chart shows three lines over a ten year period: revenue-per-share, earnings-per-share, and stock prices. In general, revenue-per-share and earnings-per-share are key drivers of stock prices.

As of Dec. 8, 2011, for those stocks as a group, revenue-per-share and earnings-per-share were soaring to all-time highs. But their stock prices were still languishing well-below their high points. That is a strong positive for stocks.

And not shown on that particular chart is that profit margins are at 20-year highs and corporate debt levels stand at multi-decade lows. Those are two additional strongly positive indicators for future gains in stocks and stock mutual funds.

No prediction for stocks is ever more than an educated guess, and a myriad of things could screw things up. But I want you to go into the New Year sharing the cautiously optimistic feeling I have, i.e., that the case for higher stock prices in the coming year appears strong.



2 Responses to “Cautious Optimism: An End of Year Present”
  1. Moojoy on August 22nd, 2015 12:46 pm

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  2. Uloh on October 16th, 2015 5:43 am

    It depends on your intevsment objectives.If the company enters bankruptcy, holders of preferred stock will be paid off before holders of common stock. However, the preferred stock gives you a fixed rate of income over the years, so that if the company does really well, you will not enjoy the benefits of the stock going up.If you are young and/or financially able to assume some risk, then you may find common stock to be the better option. If you are retired and depend on your intevsment for a steady source of income, then the preferred is probably the way to go.Note that there is such a thing as convertible preferred. This type of stock pays out a preferred dividend, enjoys the benefit of having a higher priority over the common, and if the stock does really well, you can convert it into common stock. This is a good benefit, but nothing is ever free the dividends are always lower than if it were a regular preferred stock.Best of success.