the stock market is in a bubble and it's

going to crash well at least that's what

some experts say in the media recently

for example you've got this article

saying that there are two signs the

stock market Euphoria is mirroring past

Bubbles and could end badly for

investors so watch out another one over

here Business Insider uh bubble extremes

lead investors to forget history stock

market crash expert says S&P 500 right

for a steep drop of up to 63% oh my God

God uh stock market chart eos.com bubble

are your Investments safe oh maybe not

so what's the truth are stocks really

expensive are they in a bubble ready to

crash or are stocks actually cheap well

let's look at the facts in this

[Music]

video so how do we know whether stocks

are expensive or whether stocks are

cheap well there are many ways to Value

the stock market let's begin by taking a

macro View and then we take a bottom up

view by analyzing and valuing the

individual companies now if you take a

macro view of course the simplest way to

Value the stock market is using the PE

Ratio it's not the most comprehensive

method but it's the simplest method that

a lot of people look at so as of now you

can see that the forward PE ratio of the

S&P 500 is currently at 17.1 times

earnings right there so is that

considered high or low well depends on

historical levels so if you take a look

at the last 10year average PE ratio

forward PE it's 17.5 times denoted by

this blue dotted line and the 5year

average PE ratio forward is 18.7 times

the green line so currently the uh Ford

PE ratio of the S&P is below the 5year

average and below the 10e average So

based on the 5 to 10 year averages it is

slightly undervalued so in other words

the stock market is not expensive it's

not really damn cheap it's slightly

below its uh average valuation but of

course uh PE ratio by itself is not the

most accurate because number one PE does

not take into account the cash flows of

the business number one number two it

doesn't take into account the growth of

the business so some stocks could have a

PE of 30 but be cheap because their

earnings are growing more than 30% and

some stocks with a PE of five could be

expensive because the earnings are not

growing so that's why you have to really

look at both the growth of the earnings

of the cash flow and not just PE ratio

so we're going to take a look at that

next to get a more comprehensive

understanding now some people would

argue that the PE ratio of 17 times is

uh not cheap because of high interest

rates that if you look at the last 5 to

10 years interest rates were low so PE

could be higher but now interest rates

are high so PE shouldn't be uh so high P

should be even lower is that true again

let's take a look not just at the last

10 year history let's take a look at the

last uh 50 60 70 year history uh in fact

let's go all the way back to the 1950s

which is um yeah about over 70 years

years ago of history and I've shown this

chart before this chart is actually

researched on by funat which is a very

very useful chart and you can see that

in the last 70 odd years the uh 10year

treasury yield which is the long-term

interest rates have gone you know

anywhere from 1% zero all the way to 16%

in the 1970s right now where's The Sweet

Spot you can see again The Sweet Spot is

between 3.5% % and 5.5% so that is the

spot where the stock market has the

highest

valuations of measured by PE ratio and

it's about 20 times earnings so

historically when long-term interest

rates are be between

3.5 to

5.5% the S&P 500 was selling at a PE of

20 times earnings and currently we are

near in slightly below that level all

right and right now where are 10e

interest rates we are now at about

4 8% which is somewhere

about here somewhere about here right so

we're just near the middle of that sweet

spot so yeah sure if interest rates keep

going even higher above 5.5% 6% 7% then

sure stock markets could drop definitely

right but if it remains somewhere where

we are then stocks are not that

expensive of course the fact that the

stock market is not expensive does not

mean that prices can't go lower in the

short term remember that in the short

term share prices are driven not just by

valuation they're driven by emotions and

sentiment and manipulation so if there's

a lot of fear in the market because of

the the the Middle East war and this and

that yeah could prices go even lower in

the short term and get even cheaper of

course it's possible but over time they

will always rebound to go higher and as

earnings grow and the S&P 500 earnings

have just gone through an earnings

recession in the last four quarters they

have bought them and now earnings are

beginning to grow again so shortterm

Market sure could go up and down may

still go down a bit but it will of

course bounce higher over time now again

this is a macro view let's take a look

now at a more micro bottom up approach

which is to look at the individual

companies in the S&P 500 so remember

that within the S&P you have got 500

companies and within that 500 of course

you've got some which are bloody

expensive some that are bloody cheap

some that are fairly priced so if you

look at the individual companies that

would give you give you a better idea

what's happening you know below the hood

right so what my research team has done

is they have kind of

compiled um the valuations of the 500

companies uh using Morning Star as a

source Morning Star valuation they

research valuation so credit to Morning

Star and here we are there we go so out

of the 500 companies in the S&P you can

see currently 25% of them are fairly

priced not expensive not cheap just nice

okay and 24% of stocks are undervalue

which means they the share price is

selling between 10 to 20% below the

intrinsic value and 39% of stocks are

very undervalued selling more than 20%

below the intrinsic value so are there

stocks that are expensive as well yes

there are about 6.6% of stocks are

overvalued selling 10 to 20% above

valuation and you do have that 4% which

are bloody expensive selling above 20%

of

valuation so uh if we break it down in

terms of sectors

uh which are the 11 sectors all right

communication Services consumer

cyclicals also known as consumer

discretionary uh Consumer defensives

Energy financials Healthcare Industrials

technology blah blah blah out of all the

sectors where are the cheapest stocks

coming from well take a look at the the

bars right so in which sectors do we

have the the longest dark green bar so

the dark green bars are those that are

very undervalued more than 20% under

valued and the rate bars are the ones

that are overvalued so at a glance you

can see that communication Services you

have got a lot more stocks that are

undervalued within communication

Services which include like uh meta

which is Facebook uh Google uh AT&T

Verizon these are all communication

Services stocks so a lot of cheap ones

over there next are consumer cyclical

companies like your Nike your Lululemon

your Amazon

your booking.com your Mado Libre uh

these are consumer discretionary and

again a lot of cheap stuff over there

consumer defensives uh uh not super

cheap but you do have undervalued and

quite undervalued as well and more than

the ones that are expensive so these are

your Pepsi your proen gamble um and your

Hershey for examples for example okay

now financials Financial Services a lot

of cheap

uh stocks as well your Banks uh your

mortgage brokers and your financial

exchanges your rating rating agencies

right Healthcare Healthcare very cheap

right I may do another video just on

Healthcare what are the the highest

quality healthc Care stocks that I look

at so you know let me know if you're

interested to watch a video just on

Healthcare stocks uh technology so a lot

of people think that yeah technology is

leading the recent boo Market which is

true but still a lot of cheap stocks

within the technology space real estate

a lot of cheap stocks in real estate all

right so that's where the cheap stocks

are now I know some of you are now

wondering so can you tell me what stocks

they are that are

cheap maybe okay I tell you what I'll

show it to you only once this time right

ready okay here we go so these are the

stocks uh in the S&P 500 divided

into those that are very cheap

those are highly undervalued more than

20%

undervalued those that are undervalued

between 10 to

20% those are fairly priced not cheap

not expensive fairly priced within minus

10 to to 10% valuation

range those that are 10 to 20% above

intrinsic value slightly overvalued and

those that are bloody expensive highly

overvalued well there you are okay now

some people will look at this chart and

say okay let me go buy all the very

cheap ones okay is that a good idea no

okay so one of the most common mistake

that investors make is to just buy

that's cheap no remember cheap crap is

still crap you know something as an

investor I used to do this as well years

ago and I realized that cheap crap is

still

crap if a business is not a great

business no matter how cheap it is don't

touch it because it may never recover or

may take very long to recover so I would

rather prioritize a very good business

that is a bit cheap than an okay lousy

company that's really really cheap so

remember that as an investor the number

one priority is the quality of the

business first then we look at valuation

not the other way around yeah so if you

look at stocks that are very very

undervalued you can see there quite a

number of of them and there are many of

them most of them I won't buy because

they are not super high quality so I

don't care how cheap they are so let me

give you an example look at in fact

someone sent me an a message a few days

ago say Adam Delta Airlines looks really

cheap what do you think about Delta

Airlines all right Delta Airlines

now this is a a company that I will

never touch in fact I'll never ever

invest in any Airline business not even

Singapore Airlines which is one of the

best airlines in the world because

all Airline businesses have lousy

business models they are not high

quality companies that deliver

consistent uh Revenue profits and free

cash flow over the long run so sure you

could trade it it's a short-term trade a

stop loss and profit Target but it's not

something that you want to buy and hold

and close your eyes so let's take a

close look at Delta uh and explain why

even though it's really cheap you know

I'm not going to touch it remember that

when you buy a stock you're not buying a

lottery ticket that you can predict

exactly where it's going to go in the

short term you're buying a business so

the question to ask is is it a high

quality business that has very

predictable consistent resilient Revenue

profits and cash flow that's the first

thing I look at so I look at track

record let's look at the last 5 to 10

years and if you scroll down you can see

that for Delta Airlines yep Revenue uh

you can see it's growing over here and

then it came down and then it went up so

it's not that consistent it's pretty

cyclical I tend to avoid companies that

are very cyclical I like more

consistency and then of course we had

coid and then Revenue plunged and of

course the rebound when countries reopen

over there so revenue is not that

consistent that's one thing I don't like

about these kind of businesses very very

cyclical then I look at profits and free

cash flow now look at the profits of the

company which is in uh green the net

income on net profits you can see it's

over there that's the Green net profit

and then the next year it dropped

slightly then it went up a lot then it

dropped a lot then went up and then

dropped and then dropped and then went

up and then went up and then became

negative lost money and made a bit of

money and made a bit more money so is

that consistency does profits grow

consist ently no it's very erratic right

makes money loses money makes money

loses money makes money makes more

money that's not a very good business

but more importantly we look at free

cash flow a great business is one that's

able to grow its free cash flow

consistently over time it could go down

certain years but as long as you want to

see a clear uptrend so do we see an

uptrend in free cash flow that's the one

in blue so you can see the free cash

flow over there and the next year it

dropped by half then it went up and then

it went up and then went up a lot and

then went down and then went down and

went up and went up more and then went

negative and then broke even or you know

you basically like near zero okay so

again is that consistent no all right so

this is what I call a low quality

business and it's not the fault of the

management it's not their fault it's

just all airlines are like that it's the

nature of the business and another thing

I look at by the way there are many

things I look at for those of you who

have taken my wealth Academy investor

master class or you've taken our value

momentum investor cost you know that

before I buy a stock it must pass my

seven step

criteria and usually only the top 1% of

companies in the world can pass my

criteria so I only invest in the top 1%

of companies 99% I won't touch them and

that's the first uh secret of my recipe

of investing only invest in the best and

forget the rest uh no point right just

go for the best company so another

criteria I look at again there are many

of them I'm just going to talk about

some of them right now is return on

Capital return on Capital tells you how

uh efficient the business is at

generating profits based on invested

Capital like debt and Equity so ideally

we want the return on Equity to be

over 12 to 15% so for Delta Airlines

that that looks pretty good right

they've got a roe of 48% woo pretty good

yeah but roic is only 5% so that's not

that hot the difference is that roic

takes into account the debt that's used

to finance the company so this company

uses a lot of debt so by using a LW of

debt and less Equity the Roe looks very

good but the RO I see looks like so

that's not something that's amazing

right we want ideally both to be above

12 to 15% and sure enough if you take a

look at their debt uh structure you can

see their current ratio is

at44 Which is less than one that means

they've got more current liabilities

than current assets and that's pretty

dangerous because you know they could go

bust when you don't have enough ass

assets to cover your liabilities in the

short term and their depth to ibida

ratio is five which to me it's um it's a

pretty scary because um you know I only

want to invest the depth to ibida is

three or less and this is like five you

know so things like that again even

though the stock is cheap no matter how

cheap drops even more I'm not going to

touch it you know it's not something

that I would dare to buy but again if

you want to trade it if you got a

short-term trade set up using options or

stocks with a stop loss and profit

Target that's fine as well so this is

one of those stocks that I call yeah

maybe for one like stand if if you see a

reversal pattern but not a stop that you

want to marry because when a company

doesn't have consistent profits and free

cash flow the stock price cannot go up

in the long run so sure enough if you

take a look at Delta Airlines and you

look at the long-term performance now

people always ask me when I look at the

chart of a stock what time frame do I

look at do I look at one year six months

five minutes which one and the answer is

you have to look at all the time frames

you have to look at a stock from

different perspectives and for me when I

look at a stock the first time frame I

always want to look at is the long-term

time frame which is the 10year chart

because if over 10 years you don't see a

clear uptrend forget about it this

company is not a a consistent resilient

performer and if you look at Delta

Airlines and you look at a 10year chart

this is the 10year monthly chart do you

see a clear uptrend no you see it going

basically nowhere over 10 years we call

this a very very um choppy cyclical

stock so on the other hand are there

high quality companies that are also

really cheap right now yes there are

there are quite a number of them and for

example one of them that just reported

earnings and earnings were not too too

bad pretty good but the price went down

and I think it's cheap well not I think

it's cheap the valuation says it's cheap

and it would be um where was it ah there

we are it's alphabet Google okay so

Google is really really cheap it's more

than 20% undervalued so is alphabet a

high quality business well look at the

numbers it's all about the numbers it's

not about rumors and opinions and

feelings it's all about numbers in

investing so if you look at alphabet

let's scroll down and let's see over the

long run is revenue growing consistently

yes it's growing very

consistently is net profit growing

consistently the one in green yep is

growing consistently as well and you can

see it over here it's uh enlarged all

right the one in green right net profit

growing consistently as well and how

about free cash flow is the company

generating more and more free cash flow

every single year yep in blue free cash

flow increasing consistently as well so

remember that a business is a

money-making machine the more money it

makes the more it is worth the more the

intrinsic value so when a business when

a stock every single year makes more and

more and more money the intrinsic value

keeps on

increasing and uh what's the return on

Capital return on Capital you can see is

28% return on investment invested

Capital way above the 12 to 15% minimum

that I require uh return on Equity 25%

so it's a profitable it's a profit

monster if you will and how about the

debt does it have a lot of debt to worry

about no the depbt to iida ratio is

only.

31 which means that Google could pay off

all the debt if it wanted to in less

than3 years or 4 months

can see current ratio is two they've got

double the current assets versus versus

current liabilities and again the amount

of cash they have is way more than the

entire debt of the company so if they

wanted to again they could pay back all

their debt so looks like a pretty high

quality

company but is it really very cheap now

again just bear in mind that this uh

data that is from Morning Star this is

based on morning Stars valuation so when

I do my own intrinsic calculation my own

valuation I may get a number that is

different from Morning Star usually it's

quite close but sometimes it could be

different so it's very important to not

just take this blindly you have to do

your own intrinsic value calculation

that's why in our courses we teach our

students how to Value all kinds of

stocks using our intrinsic value

calculator using all kinds of valuation

methods and of course if you join our

uip the ultimate investors Playbook then

I do all the valuations for you and it's

updated regularly so you know exactly

what are the intrinsic values of every

kind of

stock so uh is Google really really more

than 20% undervalued based on Morning

Star well let me double check that so

let's put the numbers into the intrinsic

value calculator now they just announced

their recent results so factoring in

their latest results you can see that

their free cash flow that they generated

over the last 12 months is $

77.6 billion so plug that in they've got

13.7 billion of debt right now plug that

in and you've got 119 billion in cash my

God Sund you've got a lot of money okay

then the next question is uh what's the

growth of the company what's the

projected growth rate of the company now

if you look at finis for example go to

finis um you can see that for Google the

project projected growth rate for the

next 5 years is 20% so they expect

Google to grow at 20% the next 5 years

um so I decided in this valuation to be

really really conservative so I looked

at many other websites and I took the

lowest one I could find which is on uh

Capital IQ uh and the long-term growth

for Google based on their research uh

mean is 15% and again this is the lowest

of all I wanted to be like really

conservative so 15% growth for Google uh

for the next uh 5 years right 15.5% and

I'll going to assume that after that the

next 5 years the growth is going to slow

down to half and then finally the next

10 years is just going to grow at 4%

right so really conservative uh growth

um metrics I'm using uh company recently

bought back a bit more shares so current

shares outstanding 12.54 billion so

putting that all in that gives us an

intrinsic value of

$188

taada so that's how I know how much the

business is worth is worth

$188 per share and the current share

price of Google let's plug that

in is

$122 so is that a good

deal 122 y it's selling 35% below

intrinsic value so sure Morning Star

valuation seems to U cooperate cooperate

yeah cooperate my valuation which is is

more than 20% undervalued now uh again

if you look at any great company look at

the long-term chart you can see that

it's in a very clear uptrend uh you can

put in moving averages and you can see

how well they respect the moving

averages as well right as they bounce

off the moving averages bounce and

bounce and in a big crash they bounce

off the 50 moving average bounce the 50

moving average this a very strong

support that we had it's a very very

nice uptrend so at current price levels

it is cheap it is at an attractive uh

level to accumulate shares now having

said that again always remember just

because a stock is a great company is

cheap doesn't mean that it must go up

the next day after you bought it doesn't

mean it can't go lower in the short term

because remember again in the short term

the market is not driven by Logic it's

driven by emotions by sentiment and by

manipulation so sure if you buy it right

now you're doing a good job as an

investor you're buying a good company

which is undervalued but again could it

still go down a bit more in the short

term it is possible for example you can

see a level of support here at the red

dotted line the 20 EMA this has acted as

a previous resistance and previous

support as well so you know you you buy

Here For example sure it could still go

down here now is it possible that if the

war gets even worse and even more

happens and there's more Panic could

even retest this blue line of course

that's also possible right but if that

happens should you panic and say oh

I shouldn't have bought here because now

it's going down no because there's no

way you can predict shortterm what's

going to happen because you can't

predict the news you can't predict

Israel you can't predict hamama you

can't predict all this right all

you can do is to know it's a good

company is cheap you accumulate right

and then you don't go all in at once you

want to buy a bit first and then slow

average in your position but as an

investor once you know that you've got a

good company why worry you don't have to

buy at the bottom even if it goes a bit

lower by 51% you know that once the

sentiment shifts Hallelujah is going to

go up back to the intrinsic value of 188

and even higher over time because the

intrinsic value will keep increasing as

the company generates more and more free

cash flow I hope that you did learn

something from these two simple examples

but you know what they are lot more

great high quality companies that are

selling at discounts right now that are

really at attractive valuation so I'm

getting really excited and if the market

goes down even more in the short term

I'm going to get even more excited but

you got to know which are the ones to

pick so remember only pick the high

quality companies that are undervalued

avoid the lousy companies no matter how

cheap they are if you want to learn even

more yeah do take our value momentum

investing course or do enroll for uip

where I will invest and trade uh every

single day and you can watch me do that

and learn in the process so thank you

for watching I'll see you guys in the

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and may the markets be with you