The great stock valuation debate: Blodget vs. Brown
No one really knows where the stock market is heading but many forecast it anyway. There are stocks to sell, money to manage and articles or blogs to write. The Daily Ticker's Henry Blodget has been busy debating Josh Brown, CEO of Ritholtz Wealth Management and founder of The Reformed Broker blog, on Twitter about his recent market call that stocks could plunge 50% in the next year or two. Henry and Josh sat down on The Daily Ticker set to setttle their score once and for all.
Brown says that valuations aren't necessarily the reason stock prices plummet.
"We crashed in 2007 on 12-13 times earnings," he notes in the video above. "Nobody was looking at that and saying we were overvalued."
The S&P 500 (^GSPC) P/E ratio is trading at 16 times the estimate for future earnings, slightly above the historical average of 15.
But Blodget says Brown's argument ignores "the fact that profit margins are at record highs" and assumes they'll stay there forever rather than "do what they have always done in the past...go back to normal or way below."
Related: The real reason stocks rallied last year and could rise again in 2014
Brown doesn't buy it. "Profit margins have been trending higher for almost two decades" and there are structural reasons for that, he argues in response.
"The S&P 500 of your father's era were capital goods manufacturers [with] net margins of 7% on average...the S&P today is 19% tech," he continues. "Software companies have 20% net margins. Why are we rooting for profit margins? Don't we want companies to spend money?"
Does Henry agree? Watch the video to find out!
Related: Investment advice for 2014: forget broad indexes and buy selective securities, says Jack Rivkin
Are stocks overvalued or undervalued? Tell us in the comment section below!
Follow The Daily Ticker on Facebook and Twitter (@DailyTicker)!
More from The Daily Ticker
Watch your back Harvard, this tech titan is coming for your students
Why you can't "bootstrap" yourself out of poverty
Can a hated tech stock double in 2014 like HP did last year?