From Ticker Sense
So why are the comparatively cheap mega-stocks cheap? The 26 companies that make up the top 30 percent of the MSCI Europe Index include 12 financial institutions, five energy companies and four drugmakers — industries that also figure among the U.S.biggies.
Moreover, these stocks are cheap for well-known reasons. “Oil growth is expected to moderate, financials are at the peak of a boom or a bubble [emphasis added], and pharma has few blockbuster drugs in the pipeline,” Lapthorne says. “These guys are hiding the fact that there isn’t much at reasonable value to buy.”
A recent article from Bloomberg News discussed that while stocks appear cheap overall, if you strip out the largest of the large cap stocks, the market’s overall P/E ratio rises substantially. While we have no problems with that argument, we do take issue with the explanation in the article for why some of these stocks are cheap. As quoted above, one analyst says that the financials are cheap because they, “…are at the peak of a boom or a bubble.”
Since when do bubbles imply cheap valuations?
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