Why are ASX listed stocks so cheaply priced?

[RobinHood]

Past month I've started mucking around with asx - I've noticed that many of our stocks are very cheaply priced. This reminds me of the otcbb warzone - where stocks are cheap for a reason!

whatsup with this cheap-ass pricing in what are decent liquid stocks?

 

[Realist]

I've got no idea what you are talking about. But please give us an example of a cheap bluechip stock?

I can't find many myself...

 

[Sean K]

Maybe implying the pe's of the ASX are on average historically cheap, although I'm not sure if this is the case. I read in the Fin this am that stocks were trading at an average pe of 15 where the hitorical ave was 14, and is still 20% above historical posn compared to international counterparts. Of course, the writer could be twisting figures to suit his own argument. Are they forward pe's? What's 'international'? Which list of stocks?

 

[Julia]

You need to clarify what sort of stocks you are talking about. Plenty of cheap stocks out there but they'd have no place in most portfolios.

Julia

 

[Nick Radge]

I assume the comparison is being made to US stocks.

The reason is twofold: Australian stocks tend to pay much higher dividends than US stocks and secondly, Australian stocks get split more often than US stocks.

Add these two elements back into the share price and we'll be on par, within reason, of US share prices.

 

[YChromozome]

I can remember Alan Kolher flashing up some graphs at some stage saying the same thing. I think it just reflects concerns for the slowing future ecconomy and hence earnings.

A quick search returns :

Cheaper shares to lure buyers - 19th September - The West Australian

CommSec chief equities economist Craig James said yesterday that stock exchange data showed that the price earnings (PE) ratio for the all-ordinaries index fell to 12.87 in the week to September 12 ”” its lowest level since July 1991.

It goes on to mention that Dividend Yields are the best in 16 months.

And why? A reason from AMP's head of investment strategy Shane Oliver :

Dr Oliver said that historically low PE levels were common in periods when interest rates were rising and signalled investors’ concerns about slowing global growth.

 

[chansw]

I can remember Alan Kolher flashing up some graphs at some stage saying the same thing. I think it just reflects concerns for the slowing future ecconomy and hence earnings.

I saw that on ABC News as well. Anyway, on Smart Investor magazine web site, you can find the average P/E ratios and average dividend yields of each month from 1997

http://www.afrsmartinvestor.com.au/tools/tables/Market_averages.pdf

 

[michael_selway]

I can remember Alan Kolher flashing up some graphs at some stage saying the same thing. I think it just reflects concerns for the slowing future ecconomy and hence earnings.

A quick search returns :

Cheaper shares to lure buyers - 19th September - The West Australian

CommSec chief equities economist Craig James said yesterday that stock exchange data showed that the price earnings (PE) ratio for the all-ordinaries index fell to 12.87 in the week to September 12 ”” its lowest level since July 1991.

It goes on to mention that Dividend Yields are the best in 16 months.

And why? A reason from AMP's head of investment strategy Shane Oliver :

Dr Oliver said that historically low PE levels were common in periods when interest rates were rising and signalled investors’ concerns about slowing global growth.

thing about PE is that its based on current earnings

eg it uses current spot commodity prices, so what happens if prices crashes?

what happens then to earnings? to PE?

thx
MS

 

[clowboy]

they go up subject to the share price not moving. More to the point in order to maintain the PE the share price goes down.

 

[Realist]

thing about PE is that its based on current earnings

eg it uses current spot commodity prices, so what happens if prices crashes?

what happens then to earnings? to PE?

thx
MS

Current earnings (ie already announced last financial years earnings) do not use current commodity prices.

Current commodity prices affect future earnings (earnings earnt now but announced at the end of the financial year).

If prices crash then future earnings will most likely be lower, causing the stock price to drop.

Commodity prices are not going to crash though, they may go down, they may go up. But I can not see companies giving away oil for $10 a barrel, or tons of Uranium, Nickle and iro ore cheap. It wont happen!

 

[wayneL]

Commodity prices are not going to crash though, they may go down, they may go up. But I can not see companies giving away oil for $10 a barrel, or tons of Uranium, Nickle and iro ore cheap. It wont happen!

Oil.... agree.

All else will cycle down at some point...irrevocably

 

[dubiousinfo]

thing about PE is that its based on current earnings

eg it uses current spot commodity prices, so what happens if prices crashes?

what happens then to earnings? to PE?

thx
MS

Realist is correct, current PE's are not based on the current metal prices.

Current zinc price is $1.52/lb & has averaged this price for the last 3 months.

ZFX's PE for last year is based on an average price of around 90c/lb
KZL's PE for last year is based on an average price of around $1.00/lb

And in the case of ZFX even if the price of zinc tanked to 70c/lb for the next 9 months (which I cant see happening) that would make their average price for the year 90c again & their profit would remain the same.

Is there another major zinc producer anywhere in the world with multiples like ZFX? If so let me know an I'll buy some of them as well.

 

[michael_selway]

Realist is correct, current PE's are not based on the current metal prices.

Current zinc price is $1.52/lb & has averaged this price for the last 3 months.

ZFX's PE for last year is based on an average price of around 90c/lb
KZL's PE for last year is based on an average price of around $1.00/lb

And in the case of ZFX even if the price of zinc tanked to 70c/lb for the next 9 months (which I cant see happening) that would make their average price for the year 90c again & their profit would remain the same.

Is there another major zinc producer anywhere in the world with multiples like ZFX? If so let me know an I'll buy some of them as well.

well depends what how you define "current PE's", well i was referring to 2007 EPS $283.9 as "current" and thats not based on 90c/lb

Earnings and Dividends Forecast (cents per share)
2006 2007 2008 2009
EPS 219.9 283.9 194.8 117.4
DPS 80.0 140.0 88.3 53.2

EPS(c) PE Growth
Year Ending 30-06-07 283.9 4.1 29.1%
Year Ending 30-06-08 194.8 6.0 -31.4%

Also your saying that if zinc price fell back to 70c/lbs, NPAT will be about the same for both years, which is fine. However what will happen to ZFX share price if that happend, ie if zinc prices fell to 70c/lb

thx

MS

 

[dubiousinfo]

well depends what how you define "current PE's", well i was referring to 2007 EPS $283.9 as "current" and thats not based on 90c/lb

Earnings and Dividends Forecast (cents per share)
2006 2007 2008 2009
EPS 219.9 283.9 194.8 117.4
DPS 80.0 140.0 88.3 53.2

EPS(c) PE Growth
Year Ending 30-06-07 283.9 4.1 29.1%
Year Ending 30-06-08 194.8 6.0 -31.4%

Also your saying that if zinc price fell back to 70c/lbs, NPAT will be about the same for both years, which is fine. However what will happen to ZFX share price if that happend, ie if zinc prices fell to 70c/lb

thx

MS

The forecast for 2008 is for lower than current prices & the forecast for 2009, looks to be under a $1. If prices stay where they are for the next 9 months, ZFX will have a profit of over $3.00 per share even allowing for increased costs.
Each to their own thoughts. If you think zinc is going to 70c for the rest of the year then go short.
For me I will keep some light hedging in place though October, but will then look to unwind the hedging.
Metal prices will drop but it wont be this year & in the case of zinc I dont think it will be next year either. When they do drop I will go short.
I cant pick tops or bottoms, I just play the percentages & at the moment I dont see that the best percentages are with metal prices crashing.

 

[michael_selway]

The forecast for 2008 is for lower than current prices & the forecast for 2009, looks to be under a $1. If prices stay where they are for the next 9 months, ZFX will have a profit of over $3.00 per share even allowing for increased costs.
Each to their own thoughts. If you think zinc is going to 70c for the rest of the year then go short.
For me I will keep some light hedging in place though October, but will then look to unwind the hedging.
Metal prices will drop but it wont be this year & in the case of zinc I dont think it will be next year either. When they do drop I will go short.
I cant pick tops or bottoms, I just play the percentages & at the moment I dont see that the best percentages are with metal prices crashing.

I dont think prices will fall this year or next as well, but after it might

But Im just sayign that why PE of ZFX is very low now, is that it must be taking into account the future 3-5 years etc, in its valuation
thx

ms

 

[dubiousinfo]

I dont think prices will fall this year or next as well, but after it might

But Im just sayign that why PE of ZFX is very low now, is that it must be taking into account the future 3-5 years etc, in its valuation
thx

ms

If thats the case, then why do the other major overseas zinc producers have prices & PE's that are so much higher?

Compared to overseas mining companies generally, many ASX miners are cheap. I think there is an imbalance that has developed due mainly to sentiment, which will reverse somewhat in the coming months.

 

[Realist]

well depends what how you define "current PE's", well i was referring to 2007 EPS $283.9 as "current" and thats not based on 90c/lb

Michael, you have this obsession with future earnings. It is a very bad obsession to have.

Current earnings are earnings that have been audited and announced, they are official and should be looked at closely and investment decisions made off them.

Future earnings are mere predictions and should often be ignored.

Why?

Because it is merely predictions, they are wrong as often as they are right.

No-one, and I mean no-one knows what ZFX will earn in 2009, it is a waste of time predicting it, and investing based on these numbers is suicidal. ZFX will have spare cash and buy other companies expand etc. etc. Or they'll be taken over, or Zinc will fall through the floor and they collapse ala Pasminco, or Wolrd War 3 breaks out, or well who cares but so much can happen it is pointless to try and predict it.

Read the forecasts by all means, much like you'd read who the celebrities are tipping to win the Melbourne Cup. Don't invest your money based on them though.

 

[nizar]

The forecast for 2008 is for lower than current prices & the forecast for 2009, looks to be under a $1. If prices stay where they are for the next 9 months, ZFX will have a profit of over $3.00 per share even allowing for increased costs.
Each to their own thoughts. If you think zinc is going to 70c for the rest of the year then go short.
For me I will keep some light hedging in place though October, but will then look to unwind the hedging.
Metal prices will drop but it wont be this year & in the case of zinc I dont think it will be next year either. When they do drop I will go short.
I cant pick tops or bottoms, I just play the percentages & at the moment I dont see that the best percentages are with metal prices crashing.

Agree with dubious info...
ZFX profit well over $3/share and probably a $2/divvy if prices stay as they are. But zinc metal will spike when the shortage comes in the next 3-6months and lets see how ZFX goes then.
The latest presentation from CBH shows ZFX has a 97.4% correlation to the zinc price, the most from any zinc miner.

And i agree with Realist. This obsession with future earnings estimates are unhealthy. Especially "forward terminal pe" where u take the earnings for the year most far away from the current year where the earnings forecasts are the most likely to be inaccurate and then use that for your valuation.

Like the way u said for OXR, 2008 earnings estimates of 25cps so forward terminal of 10 applies giving a price of $2.50 as being okay.

Flawed methodology if u ask me...

 

[chennyleeeee]

Gees P/E is so old school brothas! Since when has a P/E really helped anyone? Look at Cochlear, how can you justify such an outrageous P/E and its not the only stock to have remarkable P/E ratio's.

Zinifex is following what the market is doing. Even if the P/E is 5, if the market falls 200 points tomorrow, ZFX WILL fall. People holding ZFX arent going to justify holding ZFX just because its P/E ratio is super low. In my mind, the market is highly irrational. If everything was perfect, ZFX should hopefully rise to meet a P/E ratio of 10 or so, but the market is stupid and unless they decide to provide the market with something obvious like an outstanding divident payout like $3 or something, then the market wont give a rat's ass about the P/E of 5. Its been almost a year since its been on a P/E ratio of 5, and I'm sure the entire market for ZFX do know that its P/E is very low, but no one really cares, for now at least.

Look at its dividend payout. Its currently 70c which makes it approximately a 6% yield which is usual. If it were to be $3, then oh my! this stock is definately undervalued. When and if the zinc market picks up, we should be able to see ZFX accelerate to its assumed fair value, but if the boom is over, poor ZFX was never able to realise its potential.

CHENNY, enough of my rambles.