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The most obvious would be that stocks are getting expensive. Beyond that, the Buffett Indicator can’t tell you much. It’s a metric for the market as a whole, not for individual stocks. However, if you think that the Buffett Indicator is useful, you could use similar metrics to analyze individual stocks.
One stock that appears undervalued based on such metrics is Suncor Energy (TSX:SU)(NYSE:SU). It’s a Canadian energy company that got hit extremely hard by the COVID-19 recession. Down 57% year to date, it has been one of the TSX’s biggest losers.
However, it’s also a very cheap stock with a high dividend yield. Trading at 0.76 times book value, it technically costs less than the net value of its assets. It’s also cheap relative to sales, with a 0.9 price-to-sales ratio. Its projected forward P/E ratio is a little high at 27.5. But remember, that “forward P/E” is an estimated ratio. The estimates could be wrong.
On the one hand, Suncor Energy is cheap for a reason. The energy industry has been doing very poorly over the past five years, and it did extremely poorly in 2020. On the other hand, the extreme downward pressure on oil prices that produced Suncor’s current valuation won’t last forever. It should bounce back, at least somewhat. In the meantime, the stock has a juicy yield of 4.8%. It’s a pretty solid income play that Buffett himself owns.
The post Warren Buffett’s #1 Indicator Predicts Market Crashes appeared first on The Motley Fool Canada.
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