Fascination of P/E Ratios

When the Facebook IPO was the big news, there was someone on Bloomberg who was taking about amount the total investment behind Facebook compared to the amount of money they generated. This was when it “clicked” for me that any stock with a positive P/E ratio, has more investment than net profit. This is what really sparked my interest in P/E ratios and other questions like what is considered a typical P/E ratio and how do P/E ratios fluctuate over time. So then doesn’t this mean that these are inflated markets? (Markets where stocks are valued at more than they can earn in a year) How can it be that a company with a P/E ratio of say 11 is considered relatively cheap? ( The selling price of a stock at 11 times the net profit of a business is cheap?) Does a company with a positive P/E ratio have an inflated value? How can we value anything at more than the profits it produces? Doesn’t it seem illogical to value a company at  By allowing any publicly traded entity to trade at price above its yearly earnings are we allowing the public to inflate its value?

            This sparked a large idea for me; if you agree that we do indeed inflate the value of companies by allowing them to trade at a price above their total earnings per year are, could we inflate the value of other business entities besides large cooperation’s? Maybe as long as everyone else agrees with you? Idk what do u think? Is it rational to value publicly trade companies at a price above net profits? Personally I don’t think its very rational, however I understand that since everyone else thinks it is reasonable it makes it work.

            What I really want is a open discussion on this blog. Leave a comment, challenge something I said, voice your own opinion or just read my blog and keep your thoughts to yourself…but that no fun.

The List

I began pondering the value we put on things the other day; specifically our national debt and the value we assign to different publicly traded companies. The question i ended up thinking about the most was, "How many publicly traded companies ranked in descending order in terms of total market capitalization, would it take to reach $16 trillion?" I used the estimate of $16 trillion dollars for the total national debt, though some argue that it is much larger. What i found is that it would take the largest 183 companies in terms of total market capitalization added together to equal over 16 trillion dollars. Below is the table i made using numbers from 11/6/12. However this lead me to another question which is what value have we created with our national debt? What creates more value these companies below or the creation of national debt? And largest of is it even reasonable to think that we will ever dig our way out of a $16 trillion hole? When the largest 183 publicly traded companies in the world only just exceed $16 trillion of value all together. What do you think? This is only my first "real" post many more to come!

Ticker	Company	Industry			Market Cap (Billions $)
AAPL	Apple Inc.	Computer Hardware				549.948
XOM	Exxon Mobil Corporation	Oil & Gas - Integrated				418.343
PTR	PetroChina Company Limited (ADR)	Oil & Gas Operations				256.58
MSFT	Microsoft Corporation	Software & Programming				249.38
WMT	Wal-Mart Stores, Inc.	Retail (Department & Discount)				245.856
CHL	China Mobile Ltd. (ADR)	Communications Services				226.293
GE	General Electric Company	Consumer Financial Services				226.065
GOOG	Google Inc	Computer Services				224.417
RDS.A	Royal Dutch Shell plc (ADR)	Oil & Gas - Integrated				224.086
IBM	International Business Machines Corp.	Computer Services				219.365
CVX	Chevron Corporation	Oil & Gas - Integrated				214.246
BRK.A	Berkshire Hathaway Inc.	Insurance (Prop. & Casualty)				214.148
T	AT&T Inc.	Communications Services				197.834
JNJ	Johnson & Johnson	Biotechnology & Drugs				195.171
PG	The Procter & Gamble Company	Personal & Household Prods.				187.76
PFE	Pfizer Inc.	Major Drugs				183.6
BBL	BHP Billiton plc (ADR)	Metal Mining				182.929
BHP	BHP Billiton Limited (ADR)	Metal Mining				182.929
HBC	HSBC Holdings plc (ADR)	Regional Banks				182.242
WFC	Wells Fargo & Company	Regional Banks				179.952
RHHBY	Roche Holding Ltd. (ADR)	Major Drugs				166.823
KO	The Coca-Cola Company	Beverages (Nonalcoholic)				164.919
NVS	Novartis AG (ADR)	Major Drugs				164.134
JPM	JPMorgan Chase & Co.	Money Center Banks				160.573
ORCL	Oracle Corporation	Software & Programming				150.596
PM	Philip Morris International Inc.	Tobacco				144.987
PBR	Petroleo Brasileiro Petrobras SA (ADR)	Oil & Gas - Integrated				139.251
MRK	Merck & Co., Inc.	Biotechnology & Drugs				139.094
TM	Toyota Motor Corporation (ADR)	Auto & Truck Manufacturers				137.594
BP	BP plc (ADR)	Oil & Gas - Integrated				134.729
BUD	Anheuser-Busch InBev NV (ADR)	Beverages (Alcoholic)				132.601
VOD	Vodafone Group Plc (ADR)	Communications Services				131.955
VZ	Verizon Communications Inc.	Communications Services				126.147
TOT	TOTAL S.A. (ADR)	Oil & Gas - Integrated				117.953
EC	Ecopetrol S.A. (ADR)	Oil & Gas Operations				117.308
ABV	Companhia de Bebidas das Americas (ADR)	Beverages (Alcoholic)				116.327
SNY	Sanofi SA (ADR)	Biotechnology & Drugs				115.631
V	Visa Inc	Consumer Financial Services				114.78
UL	Unilever plc (ADR)	Food Processing				110.726
UN	Unilever N.V. (ADR)	Food Processing				110.726
C	Citigroup Inc.	Money Center Banks				109.441
GSK	GlaxoSmithKline plc (ADR)	Major Drugs				109.264
INTC	Intel Corporation	Semiconductors				108.671
SPY	SPDR S&P 500 ETF Trust	Misc. Financial Services				108.547
PEP	PepsiCo, Inc.	Beverages (Nonalcoholic)				106.733
AMZN	Amazon.com, Inc.	Retail (Catalog & Mail Order)				106.142
BAC	Bank of America Corp	S&Ls/Savings Banks				105.086
QCOM	QUALCOMM, Inc.	Communications Equipment				102.933
ABT	Abbott Laboratories	Biotechnology & Drugs				102.07
VALE	Vale SA (ADR)	Metal Mining				99.388
CMCSA	Comcast Corporation	Communications Services				98.826
RIO	Rio Tinto plc (ADR)	Metal Mining				97.617
BTI	British American Tobacco PLC (ADR)	Tobacco				96.966
HD	The Home Depot, Inc.	Retail (Home Improvement)				94.034
CEO	CNOOC Limited (ADR)	Oil & Gas Operations				93.79
VLKAY	Volkswagen AG (ADR)	Auto & Truck Manufacturers				93.174
SLB	Schlumberger Limited.	Oil Well Services & Equipment				92.864
CSCO	Cisco Systems, Inc.	Communications Equipment				92.263
DIS	The Walt Disney Company	Broadcasting & Cable TV				90.288
SNP	China Petroleum & Chemical Corp (ADR)	Oil & Gas Operations				89.806
SI	Siemens AG (ADR)	Electronic Instr. & Controls				89.62
SAP	SAP AG (ADR)	Software & Programming				89.462
MCD	McDonald's Corporation	Restaurants				87.808
LFC	China Life Insurance Company Ltd. (ADR)	Insurance (Life)				84.386
LVMUY	LVMH Moet Hennessy Louis Vuitton SA(ADR)	Apparel/Accessories				84.169
RY	Royal Bank of Canada (USA)	S&Ls/Savings Banks				83.161
E	Eni SpA (ADR)	Oil & Gas - Integrated				81.914
WBK	Westpac Banking Corporation (ADR)	Money Center Banks				80.689
TSM	Taiwan Semiconductor Mfg. Co. Ltd. (ADR)	Semiconductors				80.142
STO	Statoil ASA(ADR)	Oil & Gas - Integrated				77.642
ONZBF	Organizacion Soriana S.A.B. de C.V.	Retail (Department & Discount)				77.143
BASFY	BASF SE (ADR)	Chemical Manufacturing				75.878
SAN	Banco Santander, S.A. (ADR)	Regional Banks				75.406
TD	Toronto-Dominion Bank (USA)	Money Center Banks				75.295
GLD	SPDR Gold Trust (ETF)	Misc. Financial Services				72.344
DEO	Diageo plc (ADR)	Beverages (Alcoholic)				72.012
NVO	Novo Nordisk A/S (ADR)	Biotechnology & Drugs				71.936
BAYRY	Bayer AG (ADR)	Major Drugs				71.777
UTX	United Technologies Corporation	Aerospace & Defense				71.399
ANZBY	Australia and New Zealand Banking (ADR)	Regional Banks				70.635
UPS	United Parcel Service, Inc.	Air Courier				70.072
COP	ConocoPhillips	Oil & Gas - Integrated				69.835
AMX	America Movil SAB de CV (ADR)	Communications Services				67.01
AMGN	Amgen, Inc.	Biotechnology & Drugs				66.317
ITUB	Itau Unibanco Holding SA (ADR)	Regional Banks				65.947
MO	Altria Group, Inc.	Tobacco				64.56
BNS	The Bank of Nova Scotia (USA)	Regional Banks				64.465
EBAY	eBay Inc	Retail (Catalog & Mail Order)				63.858
MTU	Mitsubishi UFJ Financial Group Inc (ADR)	Regional Banks				63.668
DCM	NTT Docomo Inc (ADR)	Communications Services				63.398
AXP	American Express Company	Regional Banks				63.07
OXY	Occidental Petroleum Corporation	Oil & Gas - Integrated				63.057
MMM	3M Co	Constr. - Supplies & Fixtures				62.796
USB	U.S. Bancorp	Regional Banks				62.303
GS	Goldman Sachs Group, Inc.	Money Center Banks				59.486
BRGYY	BG Group plc (ADR)	Oil & Gas - Integrated				59.328
CVS	CVS Caremark Corporation	Retail (Drugs)				59.324
NABZY	National Australia Bank Ltd. (ADR)	Regional Banks				58.952
NTT	Nippon Telegraph & Telephone Corp (ADR)	Communications Services				58.889
TEF	Telefonica S.A. (ADR)	Communications Services				58.841
UBS	UBS AG (USA)	Investment Services				58.717
UNP	Union Pacific Corporation	Railroads				58.207
AZN	AstraZeneca plc (ADR)	Biotechnology & Drugs				57.7
VWO	Vanguard MSCI Emerging Markets ETF	Misc. Financial Services				57.654
BBD	Banco Bradesco SA (ADR)	Money Center Banks				57.363
NWSA	News Corp	Printing & Publishing				56.902
CAT	Caterpillar Inc.	Constr. & Agric. Machinery				56.742
LLY	Eli Lilly & Co.	Biotechnology & Drugs				56.607
UNH	UnitedHealth Group Inc.	Insurance (Accident & Health)				56.468
HMC	Honda Motor Co Ltd (ADR)	Auto & Truck Manufacturers				56.342
AZSEY	Allianz SE (ADR)	Insurance (Prop. & Casualty)				55.781
MA	Mastercard Inc	Consumer Financial Services				55.541
BMY	Bristol Myers Squibb Co.	Biotechnology & Drugs				54.621
ACN	Accenture Plc	Business Services				54.602
WMMVY	Wal-mart de Mexico S A B de C V (ADR)	Retail (Department & Discount)				53.984
BA	The Boeing Company	Aerospace & Defense				53.095
SU	Suncor Energy Inc. (USA)	Oil & Gas - Integrated				53.092
LUKOY	LUKOIL (ADR)	Oil & Gas - Integrated				52.87
TLSYY	Telstra Corporation Limited (ADR)	Communications Services				52.448
EMC	EMC Corporation	Computer Storage Devices				52.414
SRX	Express Scripts Holding Co	Retail (Drugs)				50.98
GILD	Gilead Sciences, Inc.	Biotechnology & Drugs				50.812
DDAIF	Daimler AG (USA)	Auto & Truck Manufacturers				50.546
CL	Colgate-Palmolive Company	Personal & Household Prods.				49.719
HON	Honeywell International Inc.	Scientific & Technical Instr.				49.196
AIG	American International Group, Inc.	Insurance (Prop. & Casualty)				48.423
LYG	Lloyds Banking Group PLC (ADR)	Money Center Banks				48.297
EPD	Enterprise Products Partners L.P.	Natural Gas Utilities				47.682
DTEGY	Deutsche Telekom AG (ADR)	Communications Services				47.597
MON	Monsanto Company	Chemical Manufacturing				47.071
SPG	Simon Property Group, Inc	Real Estate Operations				46.936
MDLZ	Mondelez International Inc	Food Processing				46.868
CHA	China Telecom Corporation Limited (ADR)	Communications Services				46.786
BCS	Barclays PLC (ADR)	Regional Banks				46.583
FB	Facebook Inc	Computer Services				46.037
DUK	Duke Energy Corp	Electric Utilities				45.106
EONGY	E.ON AG (ADR)	Electric Utilities				44.884
BBVA	Banco Bilbao Vizcaya Argentaria SA (ADR)	Money Center Banks				44.145
AAUKY	Anglo American plc (ADR)	Metal Mining				43.077
MDT	Medtronic, Inc.	Medical Equipment & Supplies				43.05
NKE	NIKE, Inc.	Footwear				42.92
CAJ	Canon Inc. (ADR)	Computer Peripherals				42.465
ABB	ABB Ltd (ADR)	Electronic Instr. & Controls				42.315
COST	Costco Wholesale Corporation	Retail (Specialty)				42.261
F	Ford Motor Company	Auto & Truck Manufacturers				42.095
TSCDY	Tesco PLC (ADR)	Retail (Grocery)				42.063
DB	Deutsche Bank AG (USA)	Regional Banks				41.884
BAM	Brookfield Asset Management Inc. (USA)	Investment Services				41.676
TGT	Target Corporation	Retail (Specialty)				41.52
DD	E I Du Pont De Nemours And Co	Chemical Manufacturing				41.336
NGG	National Grid plc (ADR)	Electric Utilities				41.126
TWX	Time Warner Inc.	Broadcasting & Cable TV				40.842
DANOY	Groupe Danone SA (ADR)	Food Processing				40.06
GM	General Motors Company	Auto & Truck Manufacturers				40.043
TEVA	Teva Pharmaceutical Industries Ltd (ADR)	Biotechnology & Drugs				39.498
NSANY	Nissan Motor Co., Ltd. (ADR)	Auto & Truck Manufacturers				38.834
SBUX	Starbucks Corporation	Food Processing				38.768
SO	The Southern Company	Electric Utilities				38.761
EEM	iShares MSCI Emerging Markets Indx (ETF)	Misc. Financial Services				38.73
IMO	Imperial Oil Limited (USA)	Oil & Gas Operations				38.615
BMO	Bank of Montreal (USA)	Regional Banks				38.544
VMW	VMware, Inc.	Software & Programming				38.336
ITYBY	Imperial Tobacco Group PLC (ADR)	Tobacco				37.969
CNI	Canadian National Railway (USA)	Railroads				37.914
AXAHY	AXA (ADR)	Insurance (Life)				37.739
LOW	Lowe's Companies, Inc.	Retail (Home Improvement)				37.707
FCX	Freeport-McMoRan Copper & Gold Inc.	Metal Mining				37.46
MFG	Mizuho Financial Group Inc. (ADR)	Regional Banks				37.382
SUHJY	Sun Hung Kai Properties Limited (ADR)	Construction Services				37.331
CHU	China Unicom (Hong Kong) Limited (ADR)	Communications Services				37.219
EFA	iShares MSCI EAFE Index Fund (ETF)	Misc. Financial Services				36.925
SFTBF	Softbank Corp (USA)	Communications Services				36.906
EMR	Emerson Electric Co.	Scientific & Technical Instr.				36.73
SGTZY	Surgutneftegas OAO (ADR)	Oil & Gas Operations				36.692
MET	Metlife Inc	Insurance (Life)				36.681
LVS	Las Vegas Sands Corp.	Casinos & Gaming				36.53
BIDU	Baidu.com, Inc. (ADR)	Computer Services				36.255
DHR	Danaher Corporation	Scientific & Technical Instr.				36.158
ZURVY	Zurich Insurance Group Ltd (ADR)	Insurance (Prop. & Casualty)				36.149
DOW	The Dow Chemical Company	Chemicals - Plastics & Rubber				36.049
HINKY	Heineken N.V. (ADR)	Beverages (Alcoholic)				35.933
BAX	Baxter International Inc.	Medical Equipment & Supplies				35.841
SYT	Syngenta AG (ADR)	Chemical Manufacturing				35.822
			Total Market Capitalization (in billions)			$16,014.92

The Plan

I recently started this blog, my plan is to talk about my thoughts on the market and also share some of the articles I read. Currently I read The Economist, Barron's, Time, The Wall Street Journal, and Andy Xie's articles from Caixin Online. So if you feel like u recognize an idea i am talking about from one of these exquisite publications... you probably do. This being the first post i want to make it known i encourage anyone and everyone reading this to leave comment on any post. Discussion and debate is a great way to learn.


Enjoy this sunday