Companies: Earnings 16% Better, Same Price

US companies measured by the Standard and Poor’s (S&P 500) have had about a 16% increase in their earnings, yet prices are about the same as they were a year ago. Hard to believe right?

Many US Businesses are performing at an exceptional level. Companies have innovated to grow their top line sales by approximately 11% (revenues) in a relatively flat economic period. Whether through lower prices or higher value, customers are buying more goods and services. What’s more amazing is many companies have figured out how to get more profit (the “babies milk” of a company) out of each dollar of sales. Personally I believe this is through the use of technology, innovation and entrepreneurship.

So if companies are doing a better job selling and making more money, shouldn’t their price be rising? It seems obvious, but sometimes we forget about the forest through the trees. A wise investor buys when prices are low and valuation is high. Right now the conditions are ripe for exactly this scenario.

Another obvious measure: the dividends yield on the S&P 500. Currently the dividend is 2.17%. Ten years from today I’ll bet the value of the S&P 500 will be much higher.

I believe it’s indicative of the environment we’re in today. Negative noise bombards people and overwhelms the obvious. But entrepreneurs and free market capitalism are resilient; they’ll continue to innovate and strive to make things better.

Remember you cannot participate in market opportunities if you are not invested. Your choice.

Steve Booren

Steve Booren is the Owner and Founder of Prosperion Financial Advisors, located in Greenwood Village, Colo. He is the author of Blind Spots: The Mental Mistakes Investors Make and Intelligent Investing: Your Guide to a Growing Retirement Income and a regular columnist in The Denver Post. He was recently named a Barron's Top Financial Advisor and recognized as a Forbes Top Wealth Advisor in Colorado.

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The opinions voiced in this material are for general information purposes only and are not intended to provide specific advice or recommendations for any individual. To determine which investments(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Stock investing involves risk including loss of principle.