There is still upside to large cap stocks by Philip Dallman iand Christopher Merker of Milwaukee-based Robert W. Baird & Co.
The stock market has seen double-digit returns in each of the last two years, following the collapse of both the credit and equity markets in 2008. To underscore the unusual strength of this recent stock market recovery, an investor would have to go back to 1986 to see a two-year period of comparable performance.
With equity prices entering a range of fair value based on a number of metrics, primarily earnings multiples and the risk premium, investors may reasonably wonder if there are any areas that still offer an opportunity for solid returns.
A stock’s return is made up of capital appreciation plus income. In an environment like our current one, where equities appear to be reasonably valued, the income portion of a stock’s return takes on more significance.
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