Stocks Cheaper Than Any U.S. Peak in 23 Years

By Whitney Kisling
Bloomberg
Mar. 05, 2012

Perhaps this is a signal people are not buying into the easy money induced high. - ChrisCorporate profits that doubled since 2009 have left the Standard & Poor’s 500 Index cheaper than at all 34 peaks since 1989, even as options traders push the cost of protecting against losses to the highest in four years.

Companies in the benchmark gauge of U.S. stocks trade for 14.1 times earnings after advancing 102 percent since March 2009 to an almost four-year high last week, data compiled by Bloomberg show. Valuations are lower than at every 52-week peak since 1989. Traders have pushed the price of contracts that pay should the S&P 500 drop 20 percent to the most since 2007 compared with ones betting on a rally of the same size.

Rising oil prices and concern European leaders have yet to contain the credit crisis are keeping investors from paying more for profits, which are projected to reach annual records through 2013. Bears say equities aren’t cheap because the profit estimates are too optimistic. Bulls say shrinking price-earnings ratios provide a margin of safety should gains in the U.S. economy fail to match forecasts.

“Stocks have just gotten too cheap,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $160 billion. “We were worrying about a Chinese hard landing that didn’t happen. We worried about a U.S. double dip and that didn’t happen. We worried about Europe disintegrating, that didn’t happen. The worst risks have passed.”

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