Blogs & Comment

Are stocks bargains now?

Stocks are in bargain territory going by Tobins Q Ratio, an indicator that tracks the ratio of market values to replacement costs for companies listed on stock exchanges. According to a recent Argus Researchnewsletter, the most recent level for Tobins indicator stood at 0.68 (based on second-quarter Flow of Funds data from the Federal Reserve) for U.S. stocks, down noticeably from the all-time high of 1.85 in 1999.
The long-term average (since 1955) for Tobins Q is 0.75, so stocks have become relatively cheap. But Tobins Q is not good at timing rebounds. In the past, there have been occasions when undervaluation got worse before it turned around. Indeed, in 1982, the Q ratio fell all the way to 0.26. Still, stocks are currently inexpensive going by historical norms.