STOCK MARKET WATCH -- Monday, 21 May 2012

[Ghost Dog]

20. Analysis: Investors lose faith in stock valuation compass

(Reuters) - European shares look cheap according to some traditional measures but investors are finding it hard to judge whether they are a good buy given the potential damage to companies and economies if Greece were to leave the euro zone.

Anyone focused on the often-used measure of how the price of a company's stock compares with the earnings that analysts expect the firm to report in a year's time might think it is time to find a bargain.

That is because the price/earnings comparison is 8.5 for the fifty biggest euro zone blue chip stocks, lower than the average of 9.8 over the past five years.

However, few are relying on such indicators these days. Speculation about Greece's future, general political and economic turmoil in Europe and uncertain global economic prospects mean investors are making several other checks before buying into a stock, sector or index.

"Equities are cheap, no doubt. They can, however, remain cheap: cheapness does not mean one should buy," said Societe Generale's global head of asset allocation, Alain Bokobza.

Investors are looking further back in history than they normally would because of the unprecedented nature of some of the potential shocks, notably a Greek exit from the euro.

/... http://www.reuters.com/article/2012/05/21/us-markets-stocks-valuations-idUSBRE84K0FM20120521