3 Things You Need to Know About the 2nd Best Earnings Season in History: Part 2

3 Things You Need to Know About the 2nd Best Earnings Season in History: Part 2

Posted On August 27, 2021 1:53 pm

In part one of this series, we saw how S&P 500 companies were knocking the cover off the ball when it comes to the 2nd greatest earnings season in recorded history.

Now let’s take a look at the most important fact you need to keep in mind to keep profiting from the best economic boom we’re likely to ever see in our lifetimes.

Fact 3: There Are Still Wonderful Bargains To Be Had

Understandably investors might fear that there are no blue-chip bargains left when the market is up 105% off the pandemic lows, and tech is up 121%.

But remember that it’s always a market of stocks, not a stock market.

For example, in March 2000, the peak of the tech bubble, the S&P 500 hit a 50% premium to historical fair value, the highest ever recorded in US history.

But at the same time, wonderful value stocks like Berkshire (BRK.B), Realty Income (O), and Enterprise Products Partners (EPD), were 50% undervalued.

That’s literally the mirror image of the outrageously overvalued broader market.

Realty was trading at 7X cash flow and a very safe 11% yield. Enterprise was 6X cash flow and a very safe 12.5% yield.

During the tech crash value saw the best rally in history, and these three companies delivered 1800% to 2300% total returns over the next 15 years.

(Source: JPMorgan Asset Management)

Today the top 10 companies in the S&P 500 makeup 29% of the market, but represent 28% of earnings. In other words, while the market is overvalued, the biggest winners have justified much of their incredible returns in recent years.

(Source: JPMorgan Asset Management)

The top 10 companies in the market are trading at 51% historical premiums, Tech bubble valuations.

But the 490 smallest companies in the S&P 500, are trading at 18.5X earnings, far more modest 18% historical premiums.

And of course, among those blue-bargains aplenty offer potentially explosive returns in 2022 and beyond.

3 Blue-Chip Bargains Poised For Potentially Explosive Rallies In 2022 And Beyond

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Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I'm a proud co-founder of Wide Moat Research, Dividend Kings, and the Intelligent Dividend Investor. My work can be found on Seeking Alpha, Dividend Kings, iREIT, and the Intelligent Dividend Investor. My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives. With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams and achieving long-term financial goals.

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