Forward Guidance: Marc Lichtenfeld on Finding Value in This Expensive Market
On this week’s episode of Forward Guidance, Marc Lichtenfeld joins us to discuss finding value in today’s mature bull market.
I start by asking Marc if investors should have a different outlook today than they did five years ago. He’s quick to point out that many investors do have different outlooks, because they entered the market only recently.
In Marc’s view, many investors still have deep scars from the late-2000s financial crisis. Some are still hesitant to invest in stocks. Others are still avoiding it altogether.
However, Marc does acknowledge that the current bull market is in its ninth year, which is quite mature by historical standards. He notes that the bull market might go on for longer... or it might not. Thus, he recommends paying attention to valuations, using trailing stops, and practicing discipline when entering and exiting stocks.
In light of the recent pullback in Nasdaq large caps, Marc does feel that today’s market is slightly expensive. However, he’s careful to assert that it is not a bubble - and that commentators who see a bubble in the current market are “being ridiculous.”
Marc acknowledges that the market may be a bit overpriced by historical standards. But he also feels that the market could rise further from here. If corporate earnings rise thanks to tax reform or fundamental strength, the market could gain without becoming more expensive.
And Marc believes that a corporate tax reform measure is likely to pass this year. He feels that as long as it’s done thoughtfully and equitably, it could get through Congress with bipartisan support.
Until then, Marc is finding value in the market by examining the valuation multiples of stocks. In addition to the standard price-to-earnings ratio, Marc looks at price-to-cash-flow, price-to-sales and price-to-book.
When evaluating a company, he compares these metrics to the company’s peers to get a sense of relative valuation. This kind of analysis is an important part of his new research service, Tactical Trader Alert. It’s part of the reason why the system has outperformed the market by more than 3,000% when back-tested over the past 17 years.
At the end of our conversation, I ask Marc for some examples of undervalued stocks from his research. He identifies the struggling retailer Gap (NYSE: GPS) as a good buy with its low price-to-cash-flow ratio. And he also singles out aerospace and defense contractor Rockwell Collins (NYSE: COL) as a bargain. Both stocks have had positive returns in the last year.
If you’d like to learn more about Marc’s new valuation-based stock research system, check out Tactical Trader Alert.
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