What Did You Buy Today?

[ken-do-nim]

(07-10-2021, 01:20 PM)fenders53 Wrote: Feel free to contradict me Eric.

Ken,

You seem willing to put in the analytics time and you should if you grow largish holdings in individual stocks.  This is a place to spend some time because a PE without context is just a number.

ABBV PE vs MSFT PE vs a REIT PE really is meaningless to an investor.  S&P500 PE numbers 2005-2015 vs today has some relevance.  It's highly likely historicals won't be completely ignored forever.  It's not a given 1990 will ever matter again though.  Don't hold you breath waiting for UTE PEs to return to 1980 levels.  The game changed.  1999 tech PEs were and still are nuts.  There are limits to valuation insanity that can't be explained away.  There is always context to consider.

Healthcare/pharma PEs would be a good place to learn.  First of all the entire sector is undervalued vs SPY.  There is risk they will be targeted by politicians from both parties.  That may or may not last for years.  Almost all the major pharmas are being discounted some for that.  As an ABBV shareholder you should be very aware their flagship drug comes off patent in 2023. Only a few drugs with this kind of revenue on earth and it's not a given they replace it by then.  Its highly unlikely they will with a single drug but they have a great pipeline so they will get through it IMO.  Maybe they have zero growth for a year or more?  You are being compensated for the risk now.  There is always a reason why a blue chip is on sale for an extended period of time.  In ABBV case it is extremely easy to research.  

I don't even own ABBV though I now regret I didn't grab the super sale 18 months ago.  I do own JNJ-PFE-MRK and a lot of BMY.  BMY is also discounted.  BMY has to show the market the money after their big merger.  They have considerable debt like ABBV. JNJ has one of the best credit ratings in the world.  We are pretty sure what their 2023 earnings look like so it is not extremely undervalued now.  We get paid to take risks.  If I don't bother to investigate the other major players in the sector I should buy a healthcare ETF.  You obviously watch the day to day moves on your stocks.  Knowledge keeps you from over-reacting to random sector moves that are going to happen for no obvious reason.  ABBV PE is nothing like 40 so you have work to do before you even comment on their valuation.

While I do know about the drug going off patent in 2023, the rest of the P/E conversation went over my head so, yeah, lots to learn there.  I was used to going to the stock profile and looking at the listed PE.  Clearly it's more nuanced than that.