Valuation Still Rules

Investors often assume that earnings growth will translate into share price increases, and it's true that higher earnings certainly help the outlook for any stock. If the initial valuation is excessive, though, you might be disappointed even after you see good results.

Last summer, high-dividend stocks were all the rage as the zero-interest-rate policy (ZIRP) pushed rates to generational lows. Tobacco stocks like Altria (MO), Philip Morris International (PM) and British American Tobacco (BTI) were each at historically overpriced valuations. Price-to-earnings ratios were at multiyear peaks. Yields were at relatively low levels for those companies....183 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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