The Rising Influence of Rising Affluence

[DewDiligence]

Abbey Joseph Cohen’s comments in today’s Barron’s:

http://online.barrons.com/article/SB50001424052702303960104576498613736669414.html

›At current prices, the market already has factored in significant [future] weakness in economic activity and corporate profits. In the U.S., P/E ratios are down to about 12 times S&P 500 earnings for the next 12 months. This is notably below the historic average of about 17 to 18 times earnings. That shows a risk aversion, an uncertainty that isn't dissimilar to what we saw in the spring of 2009 [which proved to be a great buying opportunity for stocks (#msg-35980601)]. But the U.S. banking sector is in much more solid condition now than then.

In the view of our U.S. portfolio-strategy team, the S&P 500 should be at about 1400 by year end [i.e. 19% above the current level]. This number had been at 1450, but we revised our economic forecasts around the world last week in light of growth and earnings expectations for 2012. Even with these changes, global growth will be well in excess of 4% next year, so we aren't expecting a global recession. Our 2012 U.S. GDP forecast is at 2.1%, and for Europe, 1.4%.

We maintain a constructive view of China and the other so-called BRIC nations [Brazil, Russia, India and China]. The decline of commodity prices in the past several weeks may be helpful for these nations. China will benefit from the decline in oil and metals prices. India will be benefiting from a decline in food prices.

Goldman Sachs analysts expect crude prices to rise due to supply constraints. They like ExxonMobil [XOM], which has been under pressure. The stock has a 2.8% dividend yield and trades for 7.3 times 2011 earnings. Return on equity exceeds 25%.

Wells Fargo [WFC] exceeded expectations in the second quarter, reflecting its progress in reducing costs and deploying capital. Nonperforming assets are shrinking. The company repurchased shares, yet still is likely to increase its excess capital. The current P/E is 7.8, and dividend yield is 2.1%.

Pfizer [PFE] has performed poorly, yet there have been few new fundamental concerns. Pfizer has significant and rising cash balances, and a management team committed to spinoffs, dividend increases and share repurchases, and improving R&D [research and development]. The stock yields 4.7% and the P/E ratio is 7.5.‹