No matter how you cut it or slice it, stocks can be seen as expensive these days. After eight years of going roughly straight up, the major indexes have tacked on some serious gains. The broad S&P 500 – as represented by the SPDR S&P 500 ETF Trust (SPY) – has returned more than 245% since bottoming out during the recession.
But those sorts of massive gains have some unintended consequences. For one thing, the S&P 500 is now trading for P/E of nearly 21. That’s well above the index’s historic norms.
However, while index investors may be suffering the curse of overpriced stocks, active investors should be smiling. Now represents one of the best environments for finding those GARP plays that pay big time dividends.
For investors of all stripes, now could be the time to cast away the constraints of an index fund and dive headfirst into some individual stocks.