Monday, December 10, 2001

Too Rich for Comfort?

The S&P 500's 10% post-attack rally has cheered investors. But what if this is a bear trap? A sustained rally will require a rebound in profits, and that may not happen until 2003. Although the consensus forecast from Thomson Financial/IBES calls for a 15% rebound in S&P 500 profits in 2002, Stuart A. Schweitzer, global investment strategist at JP Morgan Fleming Asset Management, predicts profits will be flat or down 5% next year, to $42 per S&P 500 unit. That's before writeoffs (and accounting changes), which total $18 per share for the 12 months ended September.

If the market continues its decline, Chuck D. Zender, who comanages $18 million in the all-short Leuthold Grizzly Bear Fund, will be prepared. His advice: The 300 largest stocks are usually good candidates for finding overvalued companies. He is particularly suspicious of companies trading at more than 30 times 2002 estimates.

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