Are stocks in a bubble?
The hot topic on last weekend's camping trip was stock bubbles. My best friend contends the stock market rose too quickly causing a bubble that we are currently experiencing. Is there any truth to that claim? I argued that price alone is not the cause of a bubble, but rather excessive valuations. I looked around the internet and discovered historical S&P 500 P/E data varies quite a bit. I saw data ranging from 15 to 17. You'd think the number would be concrete, why do sources vary? The S&P 500 started in 1957 which might be the source of the controversy. Anyways the average P/E is currently 19.28, clearly higher than the historical norm regardless of source.
Consider that when the mortgage bubble hit its height in October 2007 the S&P 500 P/E was 27.31. The market crashed shortly after. When the dotcom bubble hit its height in March 2000 the P/E ratio was 43.22. Can you imagine? With a 19.28 P/E right now, the market does appear to be over valued. I know there are other widely used methods such as the CAPE ratio/Shiller P/E, but the bottom line is: a correction of 10-15% would put the stock market back in line with historical valuations. However, I don't think it's fair to say we are in a bubble!
Illinois Tool Works increases its dividend by 10.5%
Good news for holders of this company. A double digit increase is really fantastic and a lot better than last year. I hope to add additional shares at some point, but the low yield always compels me to look elsewhere. I might have to accept a 2.5% entry yield with one, since I don't think ITW is going back down to prices at my initial purchase. In fact, I am seriously considering lowering my minimum yield to snatch up companies like this. With 14+ years remaining to accumulate income producing assets, I ought to think about adding more dividend growth. I see ITW as a long term holding.
Potential Buys for August
Currently paying close attention to XOM, CVX, KMI, and KO. I like Exxon at these prices, but hope for a chance to scoop up shares a little bit lower. I'd also like to pick up more Coca-Cola on further weakness. KO will likely pay 2 more dividends this year; it would be nice to collect on that. I bought shares around $32 in 2011 then $36 in 2012. Adding around $38-39 seems to be the next logical step as this one is never cheap. Here's to hoping we get that elusive correction and the opportunity to score some good deals!
Ammunition is hard to find!
I'm back from Korea and in the market for a new fire arm. While shopping, I noticed we are currently experiencing a shortage of bullets. Wal-Mart is sold out... at all three locations I checked! Holy Crap! I don't know if this is just a Colorado phenomenon or if this is nationwide. I was chatting with a few gun dealers and it sounds like it's going to be a while until shelves are stocked again. Perhaps it would be a good time to pick up some stock in ammunition manufacturers. Clearly there is pent up demand, at least in my state. I'm not familiar with the industry, and am not aware of dividend growth stocks either. Something to research for another day.