Stock Market Reaches New All-Time High
The news is all “doom and gloom” right now.
Gas prices are skyrocketing.
The price for a gallon of diesel has jumped over 70% since last year.
Diesel is used extensively in transportation and farming, so the higher prices are working their way down to us through higher grocery prices.
The jobs situation is also not looking great.
The US economy only added 29,000 jobs in September, when economists were forecasting around 90,000 new jobs for the month.
Also, the government revised July’s numbers downward, showing an actual loss of 23,000 jobs during the month.
To top it all off, interest rates are rising as well.
The yield on the 10-year Treasury zoomed past 5% and is now 5.25%.
The last time the yield was higher was almost 25 years ago!
It’s terrible news for new homebuyers as their high mortgage payments will price them out of many homes.
High gas prices, bad employment numbers, and high interest rates are very frustrating for the average American.
So, of course, the stock market hit a new all-time high last week!
The S&P 500 reached over 7,800 for the first time ever last Tuesday.
If everything is so terrible, why is the stock market doing so well?
The short answer is AI and energy.
Over the past 4 years, the energy and AI sectors have been booming, while the rest of the S&P 500 has been floundering.
The S&P 500 has grown on average by 8.5% each year since 2022, but when you exclude energy and AI, the average growth rate is nearly cut in half to just 4.7% each year.
What does it mean?
First, ignore the headlines and don’t invest based on what you see in the news.
The media needs viewers, and scaring everyone is an effective way to get them.
Second, despite the new all-time high for the S&P 500, there are still deals to be found, especially in other sectors not performing as well.
Right now, these are stocks I’m looking at.
You’d think with higher gas prices, investors should avoid Ford (ticker: F).
And for the most part, investors have been avoiding the car manufacturer.
Over the past 3 months, Ford’s stock price has dropped over 15%.
But the drop is an overreaction.
First, Ford’s forward price-to-earnings (P/E) ratio is only 6.35x, which is about half the vehicles and parts industry average.
So, the stock price is incredibly cheap relative to its competitors.
Second, the Trump administration just lowered fuel economy standards set to take effect by 2031.
Fuel economy is how many miles per gallon a vehicle gets when traveling.
The higher standard was putting Ford in a difficult spot with some of its less fuel-efficient trucks and SUVs.
But now Ford doesn’t need to redesign its vehicles to meet the higher standard, which will save the company a ton of money over the next few years.
High interest rates hurt real estate companies, but Realty Income (ticker: O) can weather the storm.
Realty Income is a real estate investment trust (REIT), which means it owns real estate and leases out the property to businesses or organizations.
Specifically, Realty Income owns retail locations and rents the locations to businesses like 7-Eleven and Dollar General.
High interest rates hurt Realty Income since it finances the properties using debt.
And Realty Income’s stock price has fallen almost 10% over the past month to a new 52-week low.
However, the price drop is an overreaction.
Realty Income’s business is very stable and generates a ton of cash flow with most of the cash getting passed down to investors in dividends.
Realty Income has an excellent 6% dividend yield, and makes a dividend payment every month.
Plus, Realty Income’s funds from operations margin, which is the profit margin equivalent for REITs, is over 65%, easily topping the industry average margin of 50%.
Last up is Deckers Outdoor (ticker: DECK), a footwear and apparel manufacturer.
Deckers owns the popular brands UGG and Hoka.
Its Hoka shoe brand exploded in the past few years, and Deckers’ P/E shot up to almost 40x.
Over the past decade, its earnings grew by 30% each year on average.
However, growth has started to slow recently, and the stock price has collapsed by over 50%.
A P/E of 40x for an apparel company is way too high, but its current P/E ratio of 12x is too low for a few reasons.
First, Deckers is incredibly profitable.
Its 18% profit margin is one of the highest in the apparel industry and near an all-time high for the company.
Second, the company carries less than $1 billion in debt and has a very low debt-to-equity ratio of 0.2x.
Plus, Deckers is still forecasted to grow earnings by 10% going forward.
Despite the new all-time high in the stock market, there are still companies trading at great prices.
What stocks are you looking at right now?
Coach Parker
Category: Stocks
