S&P 500 Earnings Estimates For 2006

The earnings estimate for the S&P 500 index for the year 2006 is available on the S&P 500 website in the excel spreadsheet. The following table lists the quarterly operating earnings estimates and quarterly reported earnings estimates of the S&P 500 index for the year 2006.

Quarter Ending	Operating Earnings Estimates	As Reported Earnings Estimates
12/31/2006	$22.41	$17.42
09/30/2006	$21.41	$19.42
06/30/2006	$21.09	$20.44
03/31/2006	$20.42	$20.62
Totals	$85.33	$77.90

As you can see from the totals that the operating earnings estimate for the entire year of 2006 is $85.33. The earnings estimates has made a remarkable recovery as the S&P 500 index earned only $38.85 in 2001 on operating basis.

The estimate for the reported earnings for the year of 2006 currently stands at $77.90. The earnings recovery looks even more dramatic when we compare the 2006 estimates with 2001. In 2001, the reported earnings for S&P 500 were only $24.69.

Considering the fair value of the S&P 500 is 15 times the reported earnings, we arrive at $77.90 * 15 = 1168.50. We were around 1170 mark just a few weeks ago.

If we calculate the fair value of the S&P 500 using operating earnings then we arrive at $85.33*15 = 1279.95. We are close to this number today.

Bottom line: Looking at the estimates of the next year, the market does not look terribly overvalued. But the conclusion is based on estimates and they can swing drastically with unexpected events.

All disclaimers apply.

Socially Responsible Investments Risky?

The Socially responsible investments may let you stay away from the tobacco, alcohol, weapon manufacturers, and nuclear power stocks, but socially responsible investments may be very risky for your investment portfolio.

The Calvert Social Index is widely used benchmark for the universe of the socially responsible stocks. As of 9/30/2005 it included 633 stocks in the index. The P/E ratio of the Calvert Social Index as of 9/30/2005 was a whopping 44.8. The S&P 500 index includes 500 stocks, and as of 9/30/2005 the P/E ratio of the S&P 500 index was just 17.9.

When I compare the book values of the two indexes, I see the same picture. The Price/Book ratio of the Calvert Social Index was 4.4 at the end of September 2005. The Price/Book ratio of the S&P 500 index was 2.8 at the same time.

Everyone knows that the perceived socially irresponsible stocks like tobacco companies trade at very low P/E ratios, but I never imagined that they bring down the P/E of S&P 500 index by more than half. Without socially irresponsible stocks the S&P 500 could trade at very high premiums.

The Vanguard Calvert Social Index Fund (VCSIX) benchmarks Calvert Social Index. I wasn’t surprised to see that this fund is not too much popular among the investors in the Vanguard index fund family. The current assets under management are less than $400 million.