Are we at the start or the end of the current business cycle? Looking at valuations alone, I think you would have to conclude we are closer to the end:
| Market Valuations: | Current | Mean | Delta |
| Shiller’s 10 Year PE Ratio: | 26.7 | 16.69 | 59.98% |
| Trailing 12 Month PE Ratio: | 24.87 | 15.61 | 59.32% |
| Tobin’s Q Ratio: | 1.04 | 0.68 | 52.94% |
| Market Cap to GDP: | 120.9 | 90.00 | 34.33% |
| Morningstar’s Fair Value: | 1.01 | 0.90 | 12.85% |
| Price to Sales: | 1.9 | 1.43 | 32.87% |
| Average Overvaluation: | 42.05% |
As this chart from ZeroHedge suggests, I believe we are closer to the next downturn than many think:
Based on this, I am not actively trying to put new money to work right now – just letting cash build.
Even though the market is not offering up any compelling buys, you should still be working on a watchlist of stocks you want to own. You want to be ready to go shopping when the next downturn hits.
Regarding this alternative screen – Disney has not moved much since last week – would like to see a better dividend yield / price ratio before I get invested. Here are the results:
| Ticker | Price | Fair Value | Margin of Safety | Yield % |
| GILD | $81.71 | $124.00 | $42.29 | 2.2% |
| ALXN | $131.68 | $194.00 | $62.32 | 0.0% |
| WSM | $49.77 | $73.00 | $23.23 | 2.9% |
| DIS | $92.51 | $134.00 | $41.49 | 1.5% |
Click on the links to research further
Results are based on the following screen:
- Price / Fair Value <= 0.75
- Economic Moat >= Narrow
- Financial Health Grade >= B
- Morningstar Rating = Five Stars
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