Sunday, February 05, 2006

Have commodities become the new tech stocks?

There is a fascinating article in today's NY Times on this topic

Commodities...the new tech stocks?-NY Times subscription required

This article echoes my views that commodities prices were separating from reality and that expectations were getting well ahead of themselves.

Jan 8th Link

What the NY Times article fails to mention is the fact that insider sales have been rampant in the basemetals in particular. Who can blame them...returns on capital have reached levels that seem once in lifetime!

As the interview with Grantham points out, analysts may be viewing stocks as being quite reasonably valued, with seemingly modest P/E's, however, levels of profitability as measured by net profit margins are well above norms.

Ergo, multiples may be conveying the wrong message...consider the sustainability of the competitive long can these levels of profitability reasonably last in this commodity run?


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