How can you get an edge on other investors? Watch when corporate insiders use their own money to buy their companies’ shares. It could be a sign of better times to come.
Michael Brush believes market weakness from the omicron strain of the coronavirus is overdone and that this and heavy insider buying of stocks of these 10 companies signal a “Santa Claus” rally for the stock market.
DocuSign, Tesla, Amazon and high P/E ratios
One continuing area of debate is how important price-to-earnings valuations are for stocks. The forward P/E ratio of the benchmark S&P 500 Index SPX was 20.9 at the close on Dec. 2, based on weighted consensus estimates among analysts polled by FactSet. That was on the high side — the average forward P/E for the index has been 18.7 over the past five years and 16.8 for 10 years.
But some stocks of rapidly growing companies trade at much higher valuations. In the case of Amazon.com Inc. AMZN, P/E ratios have averaged 101.7 over the past 20 years and are now valued at 67.5 times forward earnings, with investors’ confidence springing from by a continual rapid increase in revenue.
But any hint of a sales slowdown can cause a highflier to plunge.
Shares of DocuSign Inc. DOCU were trading at a forward P/E valuation of 106.3 when the market closed on Dec. 2. The stock plunged as much as 40% early on Dec. 3.
The company reported adjusted earnings and sales for its fiscal third quarter ended Oct. 31 that were higher than analysts’ consensus estimates. So what was the problem? DocuSign CEO Don Springer said that after six quarters of “accelerated” sales growth, its customers had returned to “more normalized buying patterns.” The company’s billings — not sales, but future sales under contract — had come in lower than expected.
High P/E stocks’ sensitivity to indications of slower growth are one of the reasons Tesla Inc.’s TSLA stock is controversial, trading at a forward P/E of 131.7. Gary Black explained why he still thinks shares of the electric car maker are a good buy.
More coverage of DocuSign and Tesla:
The bank of bitcoin
No, that’s not its real name — the first federal charter for a bank focused on digital assets was handed to Anchorage Digital Bank in January. Frances Yue interviewed CEO Nathan McCauley, who shared a fascinating prediction about the financial industry.
Want the most important insights on crypto and DeFi? Sign up for Frances Yue’s Distributed Ledger column.
Other crypto coverage:
How people think about where to live
Women and men often want the same things when it comes to deciding where to live, however, their preferences can vary when it comes down to selecting cities. Amanda Weinstein, an associate professor of economics at the University of Akron and Lockwood Reynolds, an associate professor of economics at Kent State University, share the results of their research into these differing thought patterns.
Must you play it safe when investing for retirement?
Buying and holding stocks is associated with building up a nest egg for retirement, but Brett Arends looks into momentum strategies that may lead to better returns.
A feud over a home
Jacob Passy writes The Big Move column, which tackles housing-related problems. This week, he helps a reader who asks if she has “squatter’s rights” to a home she has lived in for 30 years, even though her ex-husband is a half-owner who wishes to sell the property.
A holiday warning
Many retailers offer to allow shoppers to “buy now and pay later,” often with terms that appear to be free of charge. But it is best not to assume you know all the pitfalls. Katherine Wiles looks at various types of deals and describes how easy it is for shoppers to get in over their heads.
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