Looking for value in today’s market filled with equity issues growing more and more expensive over time is a difficult task. The average price-to-earnings ratio of the S&P 500 Index has now climbed above 25.55, which is approximately 10 points higher than the long-term S&P 500 average of 15.65 and 11 points higher than the median long-term level of 14.65.
The exuberant pricing of glamour, growth stocks has largely been spurred by cheap money flooding the market via accommodative monetary policy as well as an anticipated fiscal spending plan to be put in place by the U.S. has led bullish investors to continue to pile money into the market.
While the bull market may continue to run, long-term investors looking for value among growth stocks have largely looked to key fundamental metrics such as margins and return on equity or return on assets to determine the operating strength of a given company compared to its peers. Assessing the competitive strength of a given company to its primary competitors is key in determining how much of a competitive advantage is held by a given firm, providing the business with a sort of protective "moat" against competition in good times and in bad.
Predicting market downturns may be futile, however finding good companies with solid competitive advantages reflected in their underlying fundamentals is something the most iconic long-term investors have done to give themselves a competitive advantage over other money managers seeking to find the best value in any market (be it bull or bear).
