At a time when many investors seem euphoric, others are warning that stock valuations have once again turned frothy. It may pay to take a look back at valuation and performance and consider your own risk tolerance.
First, let’s take a broad look at how aggregate forward price-to-earnings ratios have moved for exchange-traded funds tracking several broad indexes over the past 10 years: For five and 10 years, the growth-oriented approaches have shined. But for three years, which includes the 2022 disruption, the Eaton Vance Value Opportunities Fund has fared best, even outperforming its benchmark.
Dunn added that he and Galko look closely at free cash flow generation. A company’s free cash flow is its remaining cash flow after capital expenditures. This is money that can be used to fund expansion, acquisitions, dividend increases or share buybacks, or for other corporate purposes.