As a teenager in the early 1980’s, just about every dime of any pocket money I had went towards either record albums (yes..the black…round things that hipsters are trying to bring back. Personally…I like where recorded music has gone. Try to put a double LP in the pocket of your cargo shorts.) or cassette tapes. Columbia/CBS records (now part of Sony) had a merchandising strategy called “The Nice Price”. The label priced albums from certain artists at attractive discount.
Lucky for me, all of the stuff I was into was priced nice: Elvis Costello, The Clash, The Boomtown Rats, great stuff at an affordable price. All of the stuff on Columbia that I didn’t want, like Loverboy or Billy Joel, usually wasn’t discounted. Didn’t matter. Didn’t want ’em. So for a fair price, I built a decent record collection back in the day. It was all about the value. Back then, the P/E on the S&P 500 was about 7.5. I should’ve been buying stocks instead of The Clash’s London Calling or Elvis Costello’s This Year’s Model.
The S&P 500’s P/E sits at 16.8 and the dividend yield sits at 1.95%. The 52 week high was 23.75 and the yield was 1.77%. That’s a 31% difference. Is it at the “Nice Price”? Hard to say. The 52 week low was 15.67 so, currently, we’re not to far off from that. Consider it in the context of the index’s P/E during the absolute, insane market top of 1999. Back in those frothy days, the P/E for the S&P 500 was a bargainly 33.52 and the dividend yield was 1.3. 16.8 times earnings doesn’t seem all that ridiculous. Of course, 7.5 times is a better deal, but again, hop in Mr. Peabody’s Wayback Machine and dial it back to 1982. The Reagan Revolution was in the blocks and waiting for the starting pistol to be fired.
What to do, what to do? My guess would be to look in the Nice Price bin and find decent stuff trading under 16.8 times trailing earnings. Thumb through some of the big pharma names like Eli Lilly (LLY) with a trailing P/E of 7.5 and a dividend yield of 5.68%. A big oiler (love ’em or hate ’em) like Conoco Phillips (COP) at 10.5 times trailing yielding 3.29% is probably OK as well. Maybe round it out with some crusty old tech/telecom. Chipster Intel (INTC) sports a late 70’s/early 80’s style P/E of 9.98 and a tech bubble uncool dividend yield of 3.54%. Round it with the soon to be a monopoly again AT&T (T) trading at 8.6 times trailing and paying 5.94%, just like it did when your grandmother owned it.
The index might be a good deal on a price basis compared to where it’s been. I think better deals can be found in cheaper, high quality names. Just like the Nice Price albums. I’d be willing to bet that more people still have their vinyl copy of This Year’s Model than Loverboy’s Get Lucky.