Jeremy Siegel Considers Stocks 25-30% Undervalued

By on September 5, 2011

Jeremy Siegel, Wharton Professor of FinanceJeremy Siegel, Wharton finance professor, was on Yahoo’s Daily Ticker and claimed that, relative to interest rates, stocks were a bargain today.

Siegel was asked by host Aaron Task to comment on Robert Shiller’s Cyclically Adjusted PE Ratio (CAPE), which indicates that equities are far from cheap.

Siegel indicated Shiller’s CAPE, which is a 10 year average of corporate earnings, is skewed because there was a “huge hole” in earnings in 2009 from the severe recession. He added that Bank of America, Citigroup and AIG caused a $100 billion loss.

Siegel pointed out that earnings for 2011 have beat the all-time high year of 2007. He said that even if there’s a recession and earnings fall their typical 25 percent, stocks will be trading at a historically inexpensive PE of 15. However, he doesn’t believe we’ll have a recession.

When asked what could change his view of the market, Siegel said $200 a barrel oil would be a problem along with any serious flare-up in inflation. But he said these were very unlikely to happen.

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