U.S. Stock Market A Bargain… Fundamentally Speaking

The financial media have heaped boundless attention upon European, Asian and Latin American stock markets. This is due in large part to "performance-chasing" around the globe. Yet, investors may be overlooking a gem of an opportunity… right here in the USA’s backyard!

Using Yahoo Finance data through Q1 end (March 31), I compared the price-to-earnings (P/E) ratios for 7 of the highest-volume ETFs. Intriguingly, the second lowest P/E belonged to the S&P’s index of the 500 largest American companies.

iShares MSCI United Kingdom Index (EWU) 13.05
State Street Spider S&P 500 Index (SPY) 15.04
iShares MSCI EAFE Europe Index (EFA) 15.39
iShares S&P Latin America 40 Index (ILF) 15.48
iShares Pacific Excluding Japan Index (EPP) 15.88
iShares FTSE/Xinhua China 25 Index (FXI) 16.40
iShares MSCI Japan Index (EWJ) 19.62

Many might be quick to argue that the higher P/Es for foreign regions is justified… since the rapid growth exists in emerging markets like Brazil, Mexico, India and China. Yet the P/Es for these other regions are higher than respective historical averages whereas the P/E for England and the U.S. are lower than their historical averages.

Now, I am the first person to acknowledge that the almighty P/E, commonly called the "multiple," is not the only piece of relevant information for an investment decision. In fact, it may not even come into play at all.

Still, world-renowned professor and best-selling author, Jeremy Siegel, recently acknowledged holding 10% of his personal assets in the WisdomTree Low P/E Index Fund (EZY). And when the author of Stocks for the Long Run goes to bat for bargains, we can at least point out the data.

It follows that the data favor large-cap U.S. stocks should we see a soft economic landing. Additionally, the strength of the Brittish pound and the low P/E for the iShares MSCI United Kingdom (EWU) might also make EWU a contender in the hunt for longer-term value.

Disclosure statement: Some of Pacific Park’s investment clients may hold positions in any of the investments mentioned above.

Leave a Reply