Stock markets are high: it is time to be cautious!
Be fearful when others are greedy
Since the end of October, the Nasdaq100 has risen by more than 19% in a straight line. It is 16% for the S&P500. Even outside the united states, the rise was significant, with the cac40 up more than 10%. This increase has helped push up the price of certain shares to significant levels and so the time to be cautious has come.
An irrational and unpredictable market
I am in not way saying to sell. I am not an expert on market timing anyway and prefer to keep my stocks as long as my investment thesis stays the same. By the way, the stock market could even go higher.
But when the ratios begin to increase, it is time to at least manage the stock entry points. Paying an expensive stock can reduce your short to medium-term perfomance. The worst case scenario is that you buy a stock, let’s say a quality growth stock with a PE of 50, the stock is down -20% in one day and you decide to sell. This kind of price drop is common in the quality growth universe. The two last I can think about are Adyen and Paycom, with two price drops of more than 35% in a single day in August and November respectively.
Some example of expensive stocks
To help me manage my entry points, I use two things: my personal fair price evaluation and the monthly candle chart of the stock. My goal is not to optimize my entry point to the dollar, but to give me some insight on whether I am buying high or low (and so whether I can open a normal position, half a position or no position at all). Here I share with you 5 examples.
Adobe ADBE 0.00%↑
Last price: $596.08 / PE24: 43.1x / FCF yield 24: 3.32%
My fair price: $497 (-16.6%)
Closest monthly support: $457
By the way, for the curious readers, here is the last deep dive on the stock: click here
Cadence Design Systems CDNS 0.00%↑
Last price: $274.64 / PE24: 65.9x / FCF yield 24: 2.18%
My fair price: $196 (-28.6%)
Closest monthly support: $204
Fair Isaac FICO 0.00%↑
Last price: $1170.61 / PE24: 58.0x / FCF yield 24: 2.07%
My fair price: $926 (-20.9%)
Closest monthly support: $696
L’Oreal $OR.PA
Last price: 451.45€ / PE24: 34.7x / FCF yield 24: 2.99%
My fair price: 354€ (-21.5%)
Closest monthly support: 381€
By the way, for the curious readers, here is the last deep dive on the stock: click here
Zoetis ZTS 0.00%↑
Last price: $196.9 / PE24: 34.5x / FCF yield 24: 2.45%
My fair price: $179 (-9.1%)
Closest monthly support: $168
Luckily, there are still opportunities
The market is luckily still full of opportunities. You just have to be more carefull. I created a list of quality stocks with their fair price estimate that I will publish soon. A lot of them are correctly valued, some of them even undervalued. Do not hesitate to ask me in the chat what stocks to add, if you are curious about my estimate on some of the stocks you are watching.