Bill Nygren: The bull has further to run

Noted value investor Bill Nygren of Oakmark Select agrees that US-listed stocks are relatively expensive on some measures, such as the price/earnings ratio. However, he’s not convinced that the market is as overvalued as some fear – other metrics paint a very different picture. For example, “dividend yields as a percentage of corporate bond yields are higher than normal”.

Also, “the economic growth outlook right now is positive” and “retained earnings are higher than average and are being put to use to delever balance sheets, increase dividends and repurchase shares”. And in any case, “there are always reasons to be bearish and there are always reasons to be bullish”.

He sees no point in worrying about overall market levels – it’s amazing “how many of our peers, who share our long-term belief that equities are likely to continue to be the highest-return asset category, believe they can enhance that return by figuring out those occasional periods where the equity market is at higher risk”. During his own 25 years as a fund manager, shares have risen ten-fold despite “wars, hurricanes, global financial crises [and] oil-price collapse”.

One sector he’s particularly positive on is energy stocks. Global GDP is likely to grow at historically normal annual rates – 2%-3% – and that can’t happen without boosting global demand for energy.

As “existing wells have a decline curve and demand will be growing, oil prices have to hit a level that induces companies to invest in finding and producing more”. So it makes sense to “assume a commodity price over time at a supply-demand clearing level that… is significantly higher than the current level”.