What some common valuation models used by Wall Street show:
FED MODEL
Calculates an "earnings yield" by dividing expected company earnings by the S&P 500 index and comparing that to the yield of 10-year Treasury notes. Market is 13% undervalued
DIVIDEND-DISCOUNT MODEL
More elaborate version of the Fed model. Analysts create proprietary formulas and plug in multiple factors, including their estimates of gross domestic product and earnings growth. Market is 15% undervalued
PRICE-TO-BOOK
Compares total market value of companies with the net worth reported on their balance sheets. Market is 30% to 40% overvalued
P-E RATIO
Divides stock prices by reported or forecast earnings. Resulting number implies how many years investors must wait before the company earns what they paid for its stock Market is 25% overvalued, based on an average p-e of 15 over the past 70 years
Data: BusinessWeek, Standard & Poor's Corp., Smithers & Co., Yardeni.com
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