The Contrarian Stock Move *NOW* [Do the OPPOSITE]

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well Citigroup just came out and

indicated that 21 billion dollars in new

long positions have been added S P 500

and this is a lot of really one-sided

betting

and it's leaving a lot of people

wondering is the stock market stupidly

euphoric again are we yet at another one

of those points in the market where the

market is just detached from reality who

remembers the days of covet where the

economy was basically at a standstill

and collapsing and yet the stock market

was just up up up and away well Bank of

America has a

pretty fascinating piece on the stock

market and what the forecast for the

stock market could be and even though to

some extent this forecast and this piece

that we looked through might look uh you

know to some as relatively one-sided

it's worth noting they're really only

projecting that the S P 500 will rise

another 2.3 percent this year at the end

of the year and who knows that could

mean there could be a dip between now

and then but what I really want you to

pay attention to

is

what they're specifically referring to

as to why the market could do something

unique here so let's take a look at the

piece together this is the piece from

Bank of America Bank of America's new

end year Target 4300 okay 4300 again

represents about a 2.3 percent increase

from where we sit today so it's actually

not that big of a deal that means you

know with the S P 500 up 9.9 you've

already had most of your gains

essentially for the years what Bank of

America is saying here all they do they

do indicate that the stock market could

actually fall to 3 900 or rise all the

way up to 4 600 in a Range

so now what I'd like to do is uh look at

some of this the the views they have

here especially on multiples and

valuations and otherwise

so they argue here that the era of easy

money is behind us and that today

Corporate America is focused on

efficiency automation AI productivity

which definitely reminds me about this

program on how to make more money and

get sh19 done faster featuring AI which

remember we're releasing that on June

1st and then there'll be a massive price

increase for for those programs on

building your wealth but anyway take a

look at this

they start talking about multiples and

uh how multiples for the S P 500 or or

high but uh multiples have been even

higher during prior crises and I thought

this was fascinating this comparison

because right now the S P 500 is sitting

at about a 21 times multiple but one of

the reasons the multiple is high is

because earnings are lower I want you

just visualize that for a moment because

it's easy to get lost in that especially

if you're half listening so let's

simplify that okay let's say you have a

stock that trades for one hundred

dollars and you had five dollars of

earnings per share uh you know last year

let's say trailing 12 months well that

puts you at a 20 times multiple

but let's say last year your earnings

were depressed and you actually expect

your earnings to be seven and a half

dollars today well then you're

forward-looking PE basically is a

hundred divided by 7.5 is actually

13.3 so one of the problems in a

recessionary time is multiples are a

dangerous tool to use during the period

of low earnings

specifically because the earnings

numbers are lower so you have to keep

that in mind so look at this when we

compare to Prior lows in the stock

market what did we end up getting well

look at this in covid we were at 23

times EPS at the low and during the

great financial crisis we were at 28x

which means we actually weren't uh as uh

as potential we're not actually as

highly valued as we were then which I

think is quite fascinating

here they make the argument that there's

plenty of bad news and I love that they

said in the title talk to the person

next to you to see the bad news and it

doesn't surprise me because people

themselves seem to be very bearish right

now uh you know like when I walk around

the neighborhood people like Kevin

saw I saw your videos in some other

videos

should I buy gold and silver and the

more I hear that the more I'm like

well that's how

regular people feel right now I want to

be polish stocks you want to be a

contrarian and so far that's paid off

this year but anyway uh I like this

listen this current valuations are not

low but rarely are low during profit

recessions so think about that for a

moment Bank of America is making this

argument here that of course valuations

are not low like nobody's here trying to

argue that oh everything's like way way

cheap right now but they make it clear

that during quote profit recessions in

other words when earnings go down

valuations are rarely low and that's

kind of what we saw with this math we

did on uh the earnings per share numbers

here when EPS is down

how could valuations ever look low they

can't

just by the nature of the calculation it

totally makes sense

on cyclically adjusted earnings

valuations argue for Price returns of

five percent per year for the S P 500

over the next decade better than the

average negative returns

uh suggested by valuation signals at the

beginning of 2022 now I actually wrote

next to this WOW because I think it's

very interesting that Bank of America's

uh evaluation metrics we're looking

forward at negative returns for the S P

500 compared to today's valuation

metrics which are actually looking at

positive S P 500 returns again this

reiterates this opportunity cost of

being in treasuries or cash and uh you

know there's this sentence here they say

as equities grow less extended bonds

look riskier that's because of

opportunity cost uh you know there's a

limit to how much you're going to gain

here uh so okay good to know so what

what are some of the charts they give

here because they give a lot of of

charts here and some of them are

actually quite interesting so let's see

what are some of the the favorites we

want to look at they they have quite a

few here oh yeah this was is a good one

right here I like this one so exhibit

six inflation drives productivity

Capital expenditures now there's only

about a 44 correlation for this but what

they're saying here is that as there's

wage inflation you actually end up

getting more productivity out of

businesses so in a weird way inflation

forces forces some uh a tightening of

the ship of businesses so to speak very

interesting so I think that's great

especially look at this mention of AI

during earnings calls you know obviously

it's at a peak now in 2023 we should

look at that chart month to month it'll

probably be even more off the chart but

anyway look at this

new S P 500 Target increased from four

thousand to forty three hundred

correcting or anchoring bias we raise

our s p 2023 year-end Target to 4 300

based on our updated Target models and

blah blah blah blah in our forecast we

incorporate five signals now they're

going to go through these signals so

we'll go through some of these signals

together so we'll jump ahead uh first uh

here's some of their models blah blah

blah okay removing some of the negatives

fine where do we want to look at here

exiting the best ERA for earnings ever

this is more like the last decade easy

earnings growth from cheap financing

BuyBacks globalization and cost cutting

may be behind us but efficiency gains

could improve the quality of earnings

and offset margin risk from reshoring so

reshoring is bringing workers back to

the United States I really think we're

actually going through a phase of what I

call

re-globalization it's something I've

been talking about for about a year it's

just that flip on de-globalization where

everybody's worried about oh that's it

you know if everybody manufactures in

America again everything's gonna be more

expensive that's true but not

everybody's just going to manufacture in

America again you'll you'll see this

transition to creating new Supply chains

in different areas but it is fascinating

this this argument here that but

efficiency gains should improve the

quality of earnings in other words

companies again focusing on that

productivity

so uh here they talk about globalization

explaining the a majority of companies

basically becoming more profitable since

1995.

uh and that usually people complain

today about basically a low risk premium

that's to say that hey I'm not getting

paid that much more to sit in stocks

than I could get on Treasury yields

maybe maybe on paper math because if

you're expecting the s p to return say

six percent and treasuries are at five

percent why would you you know why would

you bother with stocks well that's

because potentially the stock market

return could be 20 or 15 instead of uh

five percent as as the math forecast so

fascinating here this higher real rates

lower earnings risk premiums so that's a

pretty typical thing that we would see

but another thing that was fascinating

was this chart right here there's sell

side indicator now sell side don't get

confused by that that doesn't mean like

they're the short sellers or whatever

sell side is basically just your your

research side of Institutions so just

think institutions uh and think research

side so providing information is your

sell side

and their sell side indicator

is uh trying to essentially be

contrarian to what analysts think so if

every analyst is extremely bullish

then that tends to actually be bearish

for stocks and so extreme bullishness is

characterized by this red line on screen

right here it's your upper bound that's

extreme the extreme bullishness level

then you have extreme bearishness which

is characterized by analysts being

really negative about forward earnings

and expectations which is why we're

beating expectations so well and uh

their average is set by this green line

right here at the bottom

and you can see the Blue Line shows

where we sit right now

the Blue Line indicates we are really

close to the extreme bearishness level

and this sell side indicator tool

actually implies a return of 16 of the

stock market over the next 12 months

okay

now that's a positive but a negative is

we are going through quantitative

tightening and we're not entirely clear

how much of that quantitative tightening

is really going to affect the market

some are arguing that

tech stocks did well because of the

money printing basically temporarily

during the banking crisis uh of March

but then again the stock market returned

it seems like most of its returns before

the banking crisis you know in in uh the

first five weeks of the year

and then more recently here as as the

balance sheet has started reducing again

uh so I'm not convinced on that one

long-term valuation model their 10-year

forecast projects S P 500 gains of five

percent per year uh actually 5.4 percent

annualized returns over the next decade

add a 21 forward

okay what is this note here they left a

note here I I didn't read this note we

extended our long-term valuation model

back to 1950 to determine whether

evaluation predicted returns during

different macro environments uh you know

had any support or whatever our measure

of normalized eps is based on long run

linear regression fine okay this is more

of just uh well let's see here valuation

was a strong predictor of 10-year

forward returns in most decades however

Rising rates and amid inflation and raid

shocks in the late 60s and early 80s uh

oh wait I'm sorry including Rising rates

and amid inflation rate shocks so in

other words valuation was a strong

predictor of 10-year forward returns

almost always

with the exception of the mid to late

80s

in the late 90s I don't know how useful

that is then they're cutting things out

here so here they give you a little bit

of a of a chart view of the 10-year

yield in CPI uh here is that valuations

measure where usually ah this is

interesting yeah look at this you could

see this blue line here forecasted

10-year returns pretty well lines with

the actual returns

uh with the exception of 86 to about 95.

you had this weird Gap right here and

then you had this almost perfect merger

again

hmm and then of course there's this

10-year lag in in uh and that's why this

this line ends right here but anyway uh

Rising rate environment fine let's see

finally ready my time go for the Gusto

equal weighted S P 500 so what do we got

here we're relatively neutral on the cap

market cap weighted S P 500 given its

high exposure to long duration growth

stocks so there's still a little bit of

a bear on probably your big names like

the Apple the Microsoft the Amazon

Facebook I would imagine to some except

Tesla uh concentration risk seven stocks

drove the entire gain of the S P 500

year today on top of five Stacks uh

stocks uh let's see representing 22

percent of the S P 500 yeah the ones I

just mentioned Apple's market caps

surpassed the Russell 2000 in total wow

it's pretty remarkable

uh extreme concentration remains or risk

remains in the market well yeah here's

your again your Microsoft Apple Amazon

Facebook uh and your top five companies

at 22 right now so really dragging that

S P 500 up so it seems like they're big

fans here of diversifying uh but they

argue for a bigger upside to consensus

price targets for the equal weighted

index pointing to the equal weighted

index leading the cap weight index okay

this is this is no relatively nominal

difference but they're really trying to

say forget this fear about a recession

uh instead focus more on diversifying

and not just concentrating on those top

five names in the s p 500. another

reason we are more positive on risk

versus safety is the fact that the U.S

regime indicator is waffling between

downturn and an upturn

okay well and when you move from

downturn to upturn you should see some

bullishness in the market okay

interesting so this is a b of a piece

and it sort of aligns with Citibank

making news this morning talking about

uh 15 or sorry 21 billion dollars

flowing into the market there is a lot

of enthusiasm

for being a contrarian and looking at

what the analysts are saying and and

realizing okay well if analysts are

mostly bearish and calling for this

earnings recession maybe it just won't

be that bad probably my favorite piece

from this is uh is right here this

transition from where we sit as

relatively close to extreme bearishness

and uh how

that's that's a pretty good leading

indicator as well as the lesson on

valuations I think the lesson on

valuations is is so important because so

many people especially if you just look

on Twitter just talk about oh well the p

e ratio okay well what earnings are you

using are you using 2022 earnings from

the whole or using end of the year 2023.

it's it's quite fascinating when you

look at the difference of those numbers

so uh I I encourage considering that

in your analysis this is why personally

I give you sort of my hint what I like

doing is I like looking at a PEG ratio

and understanding okay well what is

something uh trading at relative to its

growth that we're projecting and to get

through some of the craziness of this

earnings recession I like to get out of

2022 and what I'm looking for is what

are what are we looking at for the end

of the year

so for example end phase is looking at

about a five dollar and 52 Cent EPS by

the end of the year uh and end phase

right now let's say it's trading for

165. that's what I remember trading for

yesterday it might be a little bit

higher so call it 165 divided by uh 552.

that puts you at about a 29.9 call it 30

times a p e ratio well their growth over

the next until 2027 so that'll be five

years you're looking at uh an average

estimate here of growth of uh that's

probably about 18 but let me do the math

really quick 32 8 plus and I go with

growth after the end of the year so that

would be 24 25

26

27 divided by five uh it's 17.5 okay I

was pretty close so 30 divided by 17.5

that's how much I'm paying for growth

you're paying a PEG ratio of about 1.7

right now which I actually think that's

generally where I'd like to be with my

growth stocks is around 1.6 1.7 with the

peg ratios just to do another one

and this one's just a little wild right

now but it'd be fun to look at is look

at Nvidia and and all of these numbers

could obviously change if the company's

going to grow more than the market is

expecting but nvidia's blow up lately

has really kind of messed with these

numbers a little bit so look at Nvidia

nvidia's forecast is four dollars and 11

cents for the uh sorry uh 456 456 for

January 2024 so that's pretty much year

end so if I go 311 divided by 456 we're

looking at a 68 times forward p e ratio

good Lord and then the growth thereafter

is expected to be about 23 24 go with

even 25 to be generous you're looking at

a PEG ratio that's 2.7

well above 1.7 we're we're in phase for

example sits right now uh so I think

probably end face has has some work to

do in terms of uh the stock going up

versus uh Nvidia being a little probably

uh over allocated to right now probably

isn't too good going into earnings

you're you're set up on on this pedestal

of perfection look at uh Tesla for

example 346 so if I go 188 divided by

346 end of the year earnings per share

that trades for 50 4.4 times use a 30

EPS growth you're sitting at 1.8 for a

peg so both test Tesla identity is

looking a lot more delicious in terms of

evaluation point of view so I I

personally like looking at valuations

that way I think sometimes we can over

complicate analysis with uh with with

too many spreadsheets and uh too much

uh you know too much over analysts or

analysis rather and we forget that uh

that ultimately valuations do matter and

in the case of many stocks valuations

right now don't actually look so

horribly extreme and I think that sort

of reiterates what we just saw in the

Bank of America piece so hopefully at

least some of that is insightful to you

uh we're gonna keep going with another

sag but in the meantime thanks for

watching this segment check out those

programs on how to make more money and

get sh19 done faster remember we've got

a big price increase after that AI

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so uh yeah cheers to uh Ai and actually

becoming more productive in your day

rather than wondering how am I going to

use this in my life I'll help you

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