The strangest bull market everNovember 14, 2013: 1:52 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
This bull market is really odd. The Dow and S&P 500 are near all-time highs. The Nasdaq is inching closer to 4,000 for the first time since the tech bubble did its best weasel impersonation and popped in 2000.
Twitter (TWTR) surged on its first day of trading, despite the fact that it is not yet profitable. Snapchat has reportedly turned down offers to sell out to Facebook (FB) for $3 billion. This is a company that is not even generating sales yet. How are all those hot "pre-revenue" Internet companies from 15 years ago doing? Are they still monetizing eyeballs?
At the same time, Bitcoin hit a record price of just under $450 this morning. You know that something screwy is going on when the Wall Street machine, Silicon Valley venture capitalists and anti-establishment libertarians are all happily getting richer. To quote John Lennon, strange days indeed. Strange days indeed.
So it's tempting to declare that stocks must be on the verge of a colossal correction, or worse, another brutal bear market like 2000 and 2008.
The Federal Reserve has pumped trillions of dollars into the market with what Senator Pat Toomey called a QE morphine drip during the Janet Yellen confirmation hearing today. And that's led investors to go crazy and take on too much risk, right? Liquidity and Twitter and Bitcoins. Oh my!
But if you look at the list of stocks hitting all-time highs, I'm not so sure that this market feels as "toppy" as previous bulls. You can't really claim that stocks are being led higher just by speculative, overvalued companies.
Sure, there are plenty of tech companies at record highs which have price-to-earnings ratios that stretch the bounds of credibility.
Pandora (P) trades at 115 times earnings estimates for its next fiscal year. 3-D printer Stratasys (SSYS), which recently acquired leading consumer 3-D printer MakerBot, is near a record and is valued at more than 50 times 2014 earnings estimates.
I wrote on Tuesday about how Adobe (ADBE) is trading at more than 35 times estimates because investors are more enamored with its cloud prospects than worried about their security problems.
And newly public in-flight Wi-Fi provider GoGo (GOGO) is up 76% from its offering price even though the company is still losing money.
But for every tech stock that has a C+C Music Factory-esque valuation that makes you go hmmm, there are several more boring, blue chip dividend paying stocks at reasonable prices that are also at record highs.
If you're keeping score at home, that's the maker of Post-it notes, the King of Beers, a railroad, a home improvement store, the parent company of Tide detergent and Crest toothpaste and a package delivery service.
None of these companies scream out 21st century innovation. None of them are inherently risky. In fact, all six of these stocks are trading at valuations (based on next year's earnings forecasts) in the mid-to-high teens. That's not dirt cheap. But it's not a Big League Chew type bubble either.
In fact, even some of the poster children for those frothy early Aughties are now trading at reasonable prices. AOL (AOL) and Priceline (PCLN) are at all-time highs. AOL is valued at less than 20 times 2014 earnings forecasts while Priceline, despite a stock price that's now nearing $1,150 a share, is trading at just 22 times next year's earnings projections.
What seems to be going on is that investors are, for the most part, rewarding companies for pretty decent profit growth.
Now you can make a reasonable argument that the quality of said profits is not great. Many companies are boosting earnings through share repurchases and cost-cutting as opposed to solid sales growth. That's unfortunate, especially when a chunk of those lower expenses come in the form of layoffs. And that can't last forever.
But this bull market doesn't reek of wretched excess as much as the ones in 1999 and 2007 did. Many companies are sitting on mountains of cash. Many have taken advantage of this unprecedented period of super-low interest rates to refinance their debt. Corporate balance sheets are healthy.
This doesn't mean that there won't be a market pullback anytime soon. But it could be brief and not herald the start of another bloodbath. It looks like bears remain in hibernation and the bulls are ... wait for the Rage Against the Machine reference ... still on parade.
Reader Comment of the Week! Fashion retailer Michael Kors (KORS) is another stock that's routinely been hitting all-time highs. I pointed that out on Twitter earlier this week. That prompted this clever ticker pun.
Hilarious. The only way to make that tweet better is to have Coors (TAP) spokesman Sam Elliott, aka The Stranger of "The Big Lebowski" fame, read it aloud.
Sometimes you eat the bar and sometimes the bar, well, he eats you.