Stocks on Sale

Amid Warren Buffett’s call to raise taxes on himself, he also had fairly positive things to say about the economy. He even said that the economy might pick up faster than the Fed expects. That’s not all. The latest filings show that Buffett made his biggest bets of the year on August 8th as the stock market was falling.

Clearly Buffett believes the market is cheap and the numbers back him up. According to the latest data, the Price/Earnings Ratio for the S&P 500 fell all the way down to 12.1 last week which is the lowest it’s been since May 1989.

Yet the latest earnings data showed that the second quarter was a very strong one for the S&P 500. With 94% of its companies reporting, the S&P 500 is on track to earn $24.88 for Q2. That surpasses the previous record of $24.06 from the second quarter of 2007.

Interestingly, Wall Street has only cut earnings estimates very slightly for the near future. For the third quarter, which we’re already halfway through, Wall Street expects earnings of $25.10. That represents growth of 16.4% over the third quarter of 2010.

For all of 2011, Wall Street expects the S&P 500 to earn $98.94, and another $113.47 for next year. It’s very possible that earnings estimates will fall, but for now, the S&P 500 is going for 10.6 times next year’s earnings. That’s pretty cheap.

Posted by on August 16th, 2011 at 7:18 am

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