by Charles Sizemore | March 3, 2014 12:12 pm
I joined Varney & Co. for Friday’s Halftime Report. First question on the agenda: Is the market giving us a repeat of 1999 tech bubble?
You could certainly be forgiven for thinking so. After the runs we’ve seen in stocks like Tesla (TSLA), Netflix (NFLX) and even Amazon.com (AMZN) — and the triple-digit price/earnings currently assigned to each — it does feel a little like 1999. But as I commented to Stuart Varney, current market valuations put us closer to 1996 than 1999.
The Shiller P/E ratio — also known as the cyclically-adjusted price/earnings ratio for its use of a rolling ten years’ worth of earnings — currently sits at 25. That’s the level that, in 1996, prompted Alan Greenspan to warn of “irrational exuberance.”
Of course, we all know what happened next. The market soared to new highs in the three years that followed, and valuations went from being irrationally exuberant to downright loony.
Can we expect the same this time? Probably not. Though it’s been nearly a decade and a half since the 1990s bubble burst, investors are far too gun shy to send valuations to true bubble levels across the broad market. Of course, when I see the valuations awarded to TSLA, NFLX and AMZN, I do start to doubt my belief that investors are capable of learning from the past.
We also discussed the JCPenney (JCP) turnaround. On a previous appearance on Varney & Company, I had claimed that Penney was on an “express train to oblivion.” Well, it appears that the “express train” might end up being a “slow boat” to oblivion. JCP posted quarterly results that were far less bad than feared, sending the stock up more than 20%. Importantly, CEO Mike Ullman indicated that Penney had enough liquidity to avoid having to raise additional capital this calendar year.
I wish Ullman the best and I hope he’s able to bring JCP stock back from the brink. But the jury is still very much out, and Penney’s long-term survival is by no means a certainty.
Finally, we talked about Zulily (ZU), a website that some are calling “Amazon.com for moms.” I would argue that Zulily is closer to a “Groupon (GRPN) for moms,” but the story is the same. Zulily is at the forefront of what I am calling the “New American Baby Boom.” Births have been in decline since 2007, but I expect this to sharply reverse throughout the remainder of this decade as the millennials settle down and start families.
Will Zulily grow fast enough to justify its valuation? Now that is a different story altogether.
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