Do You Expect Single-Digit Stock Returns?
What do Buffett, Bogle, and Gross all agree on? Low stock returns.
If you’re wondering what stocks will do over the next few years, don’t ask me--or anyone else, for that matter. No one has found a successful formula for predicting the stock market. But if you’re wondering what a prudent investor should expect from stocks over the next five or 10 years, I’ll give an emphatic answer: not much. I'm in good company: Warren Buffett, Jack Bogle, and Bill Gross all agree with me. But more on that below.
Fewer 5-Star Stocks
I base my answer in part from a simple glance at our stock star ratings. A while back, I wroteabout how the number of 5-star stocks was shrinking. It still is. Whereas we rated more than 100 stocks 5 stars when the market was in the dumps in mid-September--remember, 5-star stocks are those we think are at least 30% undervalued--we’re now down to just 22. According to our analysts, whose forecasts of sales growth and profit margins form the basis of our star ratings, bargains are scarce.
Overpriced stocks, on the other hand, abound. As of Monday, we rated 79 stocks 1 star, meaning we think they’re at least 30% overpriced. Roughly speaking, we rate the biggest 500 companies in the United States, so it’s a pretty good sampling of the market. Here’s the complete breakdown.