Being a buyer in this stock market is increasingly difficult as the main indices continue to push new highs and a lot of companies are fully priced.
While there are lots of corporations whose outlooks are improving going into 2014, expectations for earnings growth combined with dividends offer little in the way of value. That’s why a major stock market correction would be so healthy and helpful for those who wish to be invested in equities.
The Colgate-Palmolive Company (CL) is a blue chip company that’s proven to be an excellent long-term wealth creator for shareholders. The stock’s trailing price-to-earnings (P/E) ratio is currently around 27 and its forward P/E ratio is approximately 21.
The stock just broke the $65.00-per-share level after trading around $53.00 at the beginning of this year and $45.00 at the beginning of 2012. That’s a 44% gain in less than two years without including dividends.
Then there is NIKE, Inc. (NKE), another strong but mature brand that keeps hitting new record-highs on the stock market.
The company’s latest quarterly sales revealed an eight-percent gain to $6.97 billion, while net earnings grew a whopping 38% to $780 million. The company gave a rosy outlook for the next few years and its share price reflects this. About this time last month, the stock was trading around $70.00 a share. Now it’s right close to $80.00.
An institutional investor is paid to play the stock market, and while considering earnings growth potential, valuation, and general stock market conditions, a fund will often buy a stock just because it is going up. The quarterly window dressing of an equity portfolio accentuates the stock market’s top performers. Along with countless other names, Colgate-Palmolive and NIKE are prime examples. (See “Proven Wealth Creator Delivers Again; Earnings, Sales Growth Surge.”)
Even though it seems so unrealistic to see many blue chip, dividend paying stocks pushing new highs, I think they can keep on going right into 2014, given current information.
The Federal Reserve is the ruler of capital markets and extreme accommodation remains policy. With this backdrop, institutional investors can still drive the share prices of growing blue chips higher, simply because there is nowhere else to go. There is still an appetite for “safer” names that pay dividends and have reliable earnings visibility.
Of course, traders can chase stock market momentum; investors don’t need to. But attractive investment opportunities are diminishing, and investment risk for the brand-name blue chips is going up commensurately with their share prices.
Now is a great time for making a list—a wish list, that is—of some of the stock market’s best performers and dividend payers in anticipation of a much better entry point. These should be the names you’d love to own (or own more of), if only prices were more reasonable.