An Appraisal: Consumer Stocks Lead the Averages to Highs Again
Consumer growth stocks, flourishing in a sluggish economy, are leading the market to highs once again.</br></br>The high prices commanded by these growth stocks are reminiscent of the early 1970s, when investors paid seemingly outrageous prices for similar issues. Their demise produced one of the worst stock market declines in modern times, with the Dow Jones Industrial Average falling about 50% from its early 1973 high.</br></br>The accompanying chart shows some of the stocks traded on the New York Stock Exchange with the highest price/earnings ratios, based on trailing 12-month earnings. While growth stocks haven't yet reached the peak levels of December 1972, "we can see them at price levels that no one is anticipating now," says Joseph Barthel, a technical analyst with Butcher & Singer in Philadelphia.</br></br>The early '70s witnessed the rise and fall of "nifty 50" -- a group of companies that were prized by investors because they believed these concerns would grow consistently and predictably. The reign of the nifty 50 ended with the 1973 oil crisis and the bear market of 1974 because these companies didn't fare well in a high-inflation environment.</br></br>Like the nifty 50 of yesteryear, the charmers of today's market -- the stocks of drug, food, beverage, retailing and tobacco companies -- can see earnings grow despite weak economic activity and low inflation. And, these concerns generally benefit from the proposed tax overhaul.