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# VectorVest - PowerPoint PPT Presentation

VectorVest. Stock Valuation and Stock Market Cycles AAII Chapter Meeting April 12 th , 2008 Alexandria, Virginia. How The Market Works. What Causes Stock Prices to Rise and Fall?. How The Market Works. Rising Earnings Rising earnings cause stock prices to go higher and higher.

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Presentation Transcript

Stock Valuation

and

Stock Market Cycles

AAII Chapter Meeting

April 12th, 2008

Alexandria, Virginia

What Causes Stock

Prices to Rise and Fall?

Rising Earnings

Rising earnings cause stock prices to go higher and higher.

Rising Inflation

Rising inflation causes stock prices

to go lower.

Rising Interest Rates

Rising interest rates cause stock prices to go lower.

Stock Prices go up when:

Earnings go up

Inflation goes down

Interest Rates go down

Money Goes Where Money Grows

EY vs. IY

Earnings Yield vs. Interest Yield

If: EY = IY

Then: 100 x (E/P) = IY

Or: 100 x (E/V) = IY

And: V = 100 x (E/IY)

V = 100 x (E /IY)

V = 100 x (3.00/5.80)

V = \$51.72 / Share

Closing Price = \$55.48 / Share*

* 03/28/08

V = 100 x (E / IY)

x Sqr [(R + G) / (IY + F)]

where

E = Earnings in \$ / share

IY = Interest Rate in %

R = % Return on Total Capital

G = Earnings Growth in % / yr.

F = Inflation Rate in % / yr.

V = 100 x (E /IY) x Sqr[(R + G) / (IY + F)]

V =100 x (3.00/5.80) x Sqr[(6.6 +21.0 ) / (5.80 + 4.00)]

V = \$51.72 x Sqr (2.82)

V = \$86.85 \$/Share

V V Value = \$71.74 \$/Share, (03/28/08)

The DJIA is Undervalued.

Actual DJIA = 12,216

VV DJIA = 17,033*

* VectorVest, 03/28/08

The Market, as a whole,

is Undervalued.

VVC Price = 26.72

VVC Value = 29.71*

* VectorVest 03/28/08

What Causes

Bull & Bear Markets?

Bull Markets are Born

when the economy is weak, inflation and interest rates are low, and earnings are expected to rise.

Bear Markets Begin

when the economy is strong, inflation and interest rates are high and earnings are expected to fall.

The Virtuous/Vicious Cycle

• Inflation Drives Interest Rates

• Interest Rates dictate the Strength

of the Economy

• The Economy affects Earnings

• Lower Earnings ultimately cause Stock Prices to Rise or Fall

The Investment Climate

VectorVest Monitors Earnings, Inflation,

Interest Rates, Market Direction,

and Investor Sentiment.

EF I P

1. U U D U Bull Mkt Begins

2. U D D U Bull Mkt Thrives

3. U D U U Rarely Happens

4. U U U U Bull Mkt Ends

5. D U U D Bear Mkt Begins

6. D D U D Rarely Happens

7. D D D D Bear Mkt Matures

8. D U D D Bear Mkt Ends

The Current Situation:*

As of March 28, 2008, the U.S. Market

was in a Case Five Bear Market Scenario.

Inflation and Interest rates were Rising,

Earnings were Falling.

*03/28/08

The Outlook:

The Bear Market is well entrenched. Our data show that earnings are falling, and there is considerable doubt that they will be rising soon.

Important Numbers

Sales: 1-888-658-7638

Seminars: 1-800-231-0110

Product Support: 1-888-658-7638