Stock Analysts Right on Profits as Investors Disagree

(Bloomberg) -- Wall Street forecasts for the fastest U.S. earnings increase in two decades are failing to convince investors to pay a premium for the Standard & Poor’s 500 Index.Companies in the gauge traded for an average of 15.4 times annual profit this year, or 0.6 times equity analysts’ projection for 2010 earnings growth of 25 percent, according to data compiled by Bloomberg. That’s the lowest so-called PEG ratio since 1995 and half the median of 1.3 since 1961.

The smaller valuations relative to income growth show investors don’t believe earnings forecasts, which are 10 times higher than economists’ prediction for U.S. gross domestic product, says Charles Stamey, who helps oversee $24 billion at Manning & Napier Advisors Inc. Bulls say analysts got it right during the steepest rally since the 1930s and that stocks are cheap when measured by the PEG ratio, a favored tool of Fidelity Investments fund manager Peter Lynch.

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