Where to find the world’s cheapest stocks

With investors in US stocks facing some of the worst returns in history, where should they turn for value?

Andrew Van Sickle
By Andrew Van Sickle
published

838-markets

Starting valuations determine your long-term returns. Investors in US stocks "currently face some of the worst returns in history", says Jesse Felder on TheFelderReport.com. The cyclically adjusted price-earnings ratio of the S&P 500 is now 29, the third-highest reading after the bubbles of 2000 and 1929.

The average since the 1880s has been 17. There are plenty of other signs of froth on Wall Street, as MoneyWeek contributor Time Price notes in his Price Value Partners report. A valuation of $28bn for Snapchat, a profitless web business, recalls the dotcom era.

Broader indicators also suggest the US is absurdly overpriced. John Hussman on HussmanFunds.com notes that the median price/sales ratio in the S&P 500 has shot up to a record 2.5. This is "the most broadly overvalued moment in market history". In the dotcom era, a few large-caps skewed the picture. Meanwhile, the US ratio of stockmarket capitalisation to national income is around 1.3. It has only been higher for a few months during the dotcom mania.

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Europe is certainly enticing compared with America, though it is not at bargain-basement levels compared with its own history. The wider UK, Spanish and French markets are on price-earnings (p/e) ratios of around 21, while Germany's is only slightly lower at 18.7, according to figures from Capital Economics. Europe's book value is far below Wall Street's. Japan is the only market whose p/e, 18.2, is currently below its ten-year average. What's more, as we noted last week, 40% of its equities are trading below book value. It is the only major market left that can be considered cheap.

Andrew Van Sickle
Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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