Closing the book on 2008 earnings

It’s been a while since I’ve had time to post any new info, and as I was reading through the news tonight, it occurred to me to close the loop on the dismal S&P 500 earnings in Q4 of 2008.  To sum it up, they sucked.

Standard and Poors has the final numbers for 2008 here.  (Link will open an Excel spreadsheet from S&P.)  Take a look at the “12 month values” tab where you can see the annual earnings of the S&P 500.  In particular, look at columns “C” and “D” which are the operating earnings and as reported earnings.  The 2008 operating earnings came in at $49.51 and as reported came in at $14.88.

Operating earnings are the lowest since June 2003, and as reported earnings are the lowest since – well, they’re the lowest as far back as S&P reports, which is 1987.  As reported earnings haven’t been this low since at least 1987.  The S&P 500 closed 1987 at 247.08, and the DJIA finished that year at 1938.83.  That should give a little perspective on why I think stocks are still way too high.

Want more?  Take a gander at the “Estimates & PE’s” tab.  Look at the estimates for earnings and PE ratios.   Notice anything weird?  Like a negative P/E ratio in cell H33 maybe?  Here’s a clue – there’s NEVER been a negative P/E ratio for the S&P 500.  Negative numbers aren’t good when you’re talking about earnings.  And S&P is estimating a P/E ratio of -465.29 at the end of September 09.

Super high numbers aren’t good when you’re talking about P/E ratios.  With that being said, I give you cell H34 as Exhibit B.  That number is 1951.66.  Go ahead, look through the spreadsheet.  Try to find a P/E ratio anywhere in the past that was that high.  I’ll wait…..

You back?  Cool.  The highest P/E ever in the SP500 was at the end of 2008, when it was 60.7.  Does that give you some perspective?  That tells you that stock prices were way too high at the end of 2008 – and justified the sell-off into the March lows.

The current estimated P/E (for Q1 2009) is 128.  Which is the highest ever so far.  But as I showed above, the forward looking numbers are even worse.  So why do some people think this is the time to buy stocks?

That’s not a rhetorical question, as I don’t see anything that justifies current stock prices.  Even with projected earnings (which I think are still too high) the P/E’s are sky high.

Either the earnings need to soar, or the price needs to drop.  I think the price will drop, because I’ve seen nothing that indicates the recession is close to ending which would cause earnings to skyrocket.

What do you think?


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