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Finance

SPY: 3 Things You Need to Know About the 2nd Best Earnings Season in History: Part 2

In part one of this series, we saw how S&P 500 companies were knocking the cover off the ball when it comes to the 2nd greatest earnings season in recorded history.

Now let’s take a look at the most important fact you need to keep in mind to keep profiting from the best economic boom we’re likely to ever see in our lifetimes.

Fact 3: There Are Still Wonderful Bargains To Be Had

Understandably investors might fear that there are no blue-chip bargains left when the market is up 105% off the pandemic lows, and tech is up 121%.

But remember that it’s always a market of stocks, not a stock market.

For example, in March 2000, the peak of the tech bubble, the S&P 500 hit a 50% premium to historical fair value, the highest ever recorded in US history.

But at the same time, wonderful value stocks like Berkshire (BRK.B), Realty Income (O), and Enterprise Products Partners (EPD), were 50% undervalued.

That’s literally the mirror image of the outrageously overvalued broader market.

Realty was trading at 7X cash flow and a very safe 11% yield. Enterprise was 6X cash flow and a very safe 12.5% yield.

During the tech crash value saw the best rally in history, and these three companies delivered 1800% to 2300% total returns over the next 15 years.

(Source: JPMorgan Asset Management)

Today the top 10 companies in the S&P 500 make up 29% of the market, but represent 28% of earnings. In other words, while the market is overvalued, the biggest winners have justified much of their incredible returns in recent years.

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(Source: JPMorgan Asset Management)

The top 10 companies in the market are trading at 51% historical premiums, Tech bubble valuations.

But the 490 smallest companies in the S&P 500, are trading at 18.5X earnings, far more modest 18% historical premiums.

And of course, among those blue-bargains aplenty offer potentially explosive returns in 2022 and beyond.

3 Blue-Chip Bargains Poised For Potentially Explosive Rallies In 2022 And Beyond

In part one of this series, we learned that analysts expect three sectors, in particular, to see monstrous earnings growth of 24% to 33% in 2022, compared to 9.6% for the broader market.

Those sectors are industrials, consumer discretionary, and energy.

Raytheon (RTX): A Hyper-Growth Dividend Champion Trading At A Fair Price

For context, here’s the return potential of the 28% overvalued S&P 500.

S&P 500 2023 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Goldman Sachs doesn’t think analysts are yet pricing in higher corporate taxes (25%) in 2022. This could potentially reduce 2022 EPS growth by 7%. BlackRock agrees with these estimates.

S&P 500 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

And here’s what investors buying RTX today can reasonably expect.

  • 5-year consensus return potential range: 12% to 17% CAGR

RTX 2023 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

RTX 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Amazon: The King Of Consumer Discretionary Is 32% Undervalued

AMZN 2023 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

AMZN 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Enbridge (ENB): The Growth King Of Midstream Could Help You Retire Rich

ENB 2023 Consensus Total Return Potential


(Source: FAST Graphs, FactSet Research)

ENB 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

These are just three… out of 150 potentially reasonable or good buys on the Dividend Kings 500 Master List.

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Even with the market at record highs, and 28% historically overvalued, there are literally dozens of wonderful opportunities to earn mouth-watering safe income and market-crushing returns, not just in 2022 but for decades to come.

When you practice disciplined financial science, you never have to pray for luck on Wall Street, because you make your own luck.


SPY shares were trading at $449.41 per share on Friday morning, up $3.15 (+0.71%). Year-to-date, SPY has gained 20.99%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Adam Galas

Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles. More…

More Resources for the Stocks in this Article

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