Investment Strategists Show Confidence in Economy

BY STEVE DINNEN
If you harbor doubts about the strength of the economy, talk to Chris Cook from Gilbert & Cook Inc. Or Eric Lohmeier, president of NCP Inc. Or how about Todd Kellenberger, portfolio specialist at Principal Real Estate Investors? They believe that the stock market’s in good shape, valuations for private business are the strongest in years, and real estate remains a solid investment choice.
This assessment comes to us by way of the mid-year report on the economy presented by Urbandale-based wealth managers Gilbert & Cook Inc. Chris Cook is chief investment strategist there, and he pointed out that while some think the stock market is overheated, statistics don’t necessarily back that up. Look at price-to-earnings ratios, a widely used tool use to see whether a stock is over or under valued. Applied to the market as a whole, the 25-year average on PE ratios is 16.1. That’s just where it stands today.

A recession (remember 2008?) typically endures for 15 months, while a recovery lasts for 47 months. We currently are in the 110th month of recovery. While the growth rate is hardly setting a blistering pace, Cook says that capital is getting deployed “very prudently.”

“This growth rate, although not very exciting, can continue for a long time,” he says.

If you’re on the prowl for a business to own, or especially to sell, now’s the time to get moving, said Lohmeier. Interest rates are low, inflation is in check and the federal corporate tax rate just got slashed. All of this has played into the hands of business owners, who are finding that when they sell a business they might command a price of eight times free cash flow. That compares to past averages of five to seven times free cash flow.

“This is the best environment for mergers and acquisitions in my lifetime,” says Lohmeier.

Strong times also are playing out for real estate, which Kellenberger reviewed using REITS – real estate investment trusts – as a yardstick. REITS, both U.S. and global, have been top performers in the stock market since 2017. For investors they have provided diversification, and a stable cash flow that produces a decent yield. Nearly $200 billion is sitting on the sidelines awaiting investment in everything from apartments to offices buildings to industrial properties, says Kellenberger.

So it’s clear sailing ahead. Unless something roils the waters. Like a trade war? Recent tariffs imposed by the U.S., or countered by foreign nations, already have had a negative impact on steel users and farmers.

“With tariffs and trade wars, everybody loses,” Lohmeier says.

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