Newspaper article THE JOURNAL RECORD

Stock Valuations Continue to Amaze

Newspaper article THE JOURNAL RECORD

Stock Valuations Continue to Amaze

Article excerpt

NEW YORK -- Investors who insist on finding good value before they buy stocks have had a frustrating time in the first quarter of 1999.

The supposedly overpriced blue chips, which soared much higher than the rest of the market in 1998, have gained still more ground in the January-March period.

And the depressed small stocks, widely described as cheaper in relative terms than they have ever been before, have posted further losses since the new year began. Powered by the seemingly unstoppable blue chips, the Dow Jones average of 30 industrials has cracked the 10,000 barrier in recent days, and the Standard & Poor's composite index has broken 1,300. Meanwhile, the Russell 2000 index, a widely recognized gauge of trends in smaller stocks, has extended last year's declines, and languishes about 20 percent below the best levels it reached last spring. "Despite solid earnings growth, emerging growth stocks are on one of their longest losing streaks on record," says L. Keith Mullins, an analyst who specializes in smaller stocks at the brokerage firm of Salomon Smith Barney. All this demonstrates that following the simple old adage "buy cheap and sell dear" is no simple job. Indeed, all through the bull market of the past 17 years, it has been a very chancy proposition to try to gauge when any group of stocks, or the market as a whole, was over- or undervalued. At Dow 10,000 and S&P 1,300, many people consider the blue chips overvalued by as much as 20 percent. The aggregate price-earnings ratio of the S&P 500, recently hovering around 34, looks outlandishly high by historical standards. But analysts have been complaining about overvaluation ever since the bull market got rolling. The Dow has climbed more than 50 percent since Alan Greenspan, chairman of the Federal Reserve, issued his first warning about "irrational exuberance" in December 1996. …

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