The Rally Has Legs, Dow Eventually Headed for 15,000, Says Value Investor Charles Lemonides Posted Dec 21, 2009 10:53am EST by Peter Gorenstein The recent pullback in financial stocks and a cooling in the general market (despite today's move) have many investors wondering whether the great rally of 2009 is history. Charles Lemonides, portfolio manger of Valueworks, is not among them.
Despite the ridicule he received from our viewers this summer for saying the Dow would hit 15,000, he's sticking to his guns. "The next move is to 12,000, and over the next several years we'll get back to 15,000," he declares.
It's a bold prediction, but one he claims is based on improving economic fundamentals "unfolding over a multiyear period."
But what about stock market fundamentals?
Thanks to the rally, stocks that were obvious bargains in March are no longer so cheap. According to Robert Shiller's cyclically adjusted P/E valuation model -- stock price divided by average 10-year earnings -- stocks are trading at a 20 P/E, higher than the historical average of 16.
That doesn't concern Lemonides. "Ten-year average earnings don't tell you about earnings potential,” he retorts. Based on his work, "stocks, across the board, are radically attractively priced today."
Of course, that's all based on a future of increasing revenue growth. If the economy stalls, all bets are off.
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