This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why Stocks -- Even at Record Highs -- Could Rise Another 25%

NEW YORK (TheStreet) -- Stocks may be trading near record levels, but the bull market is not done.

Digital technologies permit businesses to use investors' cash far more efficiently these days, and could easily push up stock prices another 25%.

Henry Ford had a great idea -- an inexpensive assembly-line vehicle -- but he needed vast amounts of capital and decades to erect factories, cultivate suppliers and establish a national dealership network.

Is Today’s Market Really Any Different From 1999?

In only six years, Google (GOOG) used off the shelf servers and the free Internet to convert its novel search engine and an investment of $25 million into a global company worth $23 billion at its initial public offering. In the digital age, innovators don't need a lot of money to create a valuable company.

Old-line industrial firms can use factories and manage supply chains more efficiently. Modern multinationals such as General Electric (GE - Get Report) exploit new products and markets, and generate vast profits, with much less cash than in decades past.

That's why big U.S. companies are flush with billions in excess profits. They don't lack for opportunities but need much less cash to exploit those.

Along with individual investors, they bid up prices for young companies such as Facebook (FB) andTwitter (TWTR), and buy back large blocks of their own stock.

The abundance of financial capital pushes up sustainable stock prices and price-to-earnings ratios. The Standard and Poor's 500 Index, which encompasses about four-fifths of U.S. publicly traded equities, recently closed as high as 1988 with a P/E ratio of about 19.6.

During the past 25 years, that ratio has averaged 18.9, and when the index first crossed the 1000 threshold in 1998, the P/E ratio was about 25.

Considering how efficiently the digital economy can create wealth from investors' cash, a P/E ratio as high as 25 and the S&P index trading at 2500 are quite possible

If the Federal Reserve raises short-term rates in 2015, as it is expected to do, medium- and long-term rates will not go up a lot, further supporting stock prices at higher levels.

How Twitter’s Blowout Quarter Changed My Mind – It’s Not Overvalued

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
GOOG $548.34 0.00%
GE $24.86 0.00%
AAPL $123.25 0.00%
FB $83.30 0.00%
TSLA $185.00 0.00%

Markets

DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs