Last week, we came together for the first-ever Bull vs. Bear Summit...
I was on a panel of experts. And I talked through my position as a bull – someone who believes the markets are headed higher.
The bears on the panel, though, made a darn convincing case. (I urge you to watch a replay of the event, if you haven't already... Read on for the details.)
I think most people will feel more comfortable siding with the bears...
I get it. This bull market has gone on for 10 years. It's simply easier to "just say no" and sit on your hands. Nobody will fault you for being prudent – right?
Personally, I think that's a HUGE mistake. To be fully open here, I do believe the bears will be right – eventually.
Just not yet...
I believe the stock market is headed much higher from here. And while sitting on your hands might feel safer, you will most likely miss out on some incredible gains as we approach the final top.
Let me share with you just one reason why: Great stock bull markets, like the one we are in right now, always die the same death...
Two things happen at the end of a great bull market.
First, stocks reach extreme valuations. Then investors become euphoric and lose their sense of reality.
We saw the second half of this equation most recently in real estate in 2006. Back then, investors expected house prices to soar 20% a year – in a world where incomes and the population were growing by low single digits. That's what I mean when investors lose their sense of reality.
Right now, investors are nowhere near the euphoria they felt about real estate in 2006. Stock investors are more pessimistic than optimistic today.
But what about valuations?
The last great boom peaked in early 2000. Tech stocks were the leaders back then – and I expect they will be the leaders this time around, too.
So let's look at the valuations of the major tech names at the end of 1999 versus their valuations at the end of 2018 – and see how they compare. We'll use the price-to-earnings (P/E) ratio, one of the most common ways to measure value.
I want you to take a look at the valuations in this table closely – and tell me what you see...
Here's what I see:
- Microsoft ended 1999 three times more expensive than it ended 2018.
- Apple ended 1999 three times more expensive than it ended 2018.
- Intel and IBM were almost four times more expensive in 1999 than in 2018.
- Oracle was seven times more expensive in 1999 than in 2018.
Of course, the tech giants Google (GOOGL) and Facebook (FB) didn't trade back in 1999. But Google's P/E ratio at the end of last year was 24... close to Microsoft's.
Facebook's P/E at the end of 2018 – stunningly to me – was just 17. I say "stunningly" because the company's profit margin is in excess of 40%! To put this another way, 40% of Facebook's sales turns straight into profits for the company.
With a profit margin like that, Facebook's stock wasn't expensive at the end of 2018 – it was cheap!
I apologize for running all those numbers by you. But they are important... They make the point: We are not in a stock mania yet. Not at all.
Nearly all great stock market booms end in a mania phase. I expect this 10-year bull market will do the same.
You can disagree with me... and sit on your hands and wait for the crash. Or you can take advantage of the Melt Up phase of this great bull market. I suggest you do the latter.
I also urge you to watch the Bull vs. Bear Summit, so you can hear both sides of the debate and decide how you'll handle the markets.
Importantly, during the summit, my good friend Dr. Richard Smith shared exactly how you can make money in the next 12-18 months... regardless of whether the bulls or the bears are right.
(I'm biased, of course... I believe the bulls will be right. But you can make the call for yourself.)
Stocks are not in a mania – yet. But they will enter one before this great bull market is over. That's my take.
Get your money in place to take advantage of it.
Good investing,
Steve
Editor's note: The Bull vs. Bear Summit will only be available to watch for a short time... so don't miss it. You'll hear Steve's latest thoughts on the Melt Up... Plus, you'll learn how a simple set of tools can help you profit in today's much-debated stock market. Click here to view the replay now.
Further Reading
"It was a rare event," Brett Eversole writes. "And it means this loser from last year will likely be a big winner in 2019." Get the details on why one corner of the market is likely setting up for big gains right here.
"You can use this technique to improve your investing success and make better life decisions in general," Richard says. As the Melt Up takes off, it's important to have a plan in place. Learn how one strategy can help right here: Boost Your Odds of Investment Success With This Simple Technique.
Last week, we highlighted a short-term opportunity in a beaten-down U.S. stock. My friend and colleague Dr. David Eifrig has more details on why the company could outperform in the long run...
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
PayPal (PYPL)... digital payments
Salesforce.com (CRM)... cloud computing
VMware (VMW)... cloud software
Okta (OKTA)... software
Splunk (SPLK)... software
Analog Devices (ADI)... semiconductors
Broadcom (AVGO)... semiconductors
American Tower (AMT)... wireless infrastructure
Ubiquiti Networks (UBNT)... wireless networks
Boston Scientific (BSX)... medical devices
Abbott Laboratories (ABT)... medical devices
Stryker (SYK)... medical devices
Agilent Technologies (A)... lab equipment
CareTrust REIT (CTRE)... health care REIT
Boston Properties (BXP)... office REIT
Lennox (LII)... HVAC equipment
Dollar General (DG)... discount retailer
Procter & Gamble (PG)... consumer goods
Starbucks (SBUX)... "World Dominator" of coffee
21st Century Fox (FOX)... mass media
NEW LOWS OF NOTE LAST WEEK
Activision Blizzard (ATVI)... video games
Urban Outfitters (URBN)... clothing
Goodyear Tire & Rubber (GT)... tires
Kellogg (K)... snacks and cereal
