April 9 (Bloomberg) -- U.S. stocks will rally further as the doubling of the Standard & Poor’s 500 Index from its 2009 low has yet to stretch valuations, according to Holland & Co.
Valuations have not risen to levels that threaten an imminent correction, even though equities trade at a higher price-to-earnings ratio than they did five years ago, Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York, told Tom Keene and Scarlet Fu on Bloomberg Surveillance.
“This is not a bear market,” Holland said. “The bull market still has some significant legs to it before this is over. We had valuations that were screamingly attractive five years ago. Fast forward to today, they are reasonably valued. These things normally don’t end until we get overvalued and we’re not there yet.”
Three rounds of Federal Reserve stimulus have helped propel the S&P 500 as much as 180 percent higher from its low in March 2009. The bull market has pushed the benchmark to 15.8 times estimated earnings from a low of 11 in October 2011, according to data compiled by Bloomberg. The index’s average multiple in the last five years was 14.3.
Holland identified International Business Machines Corp. and Microsoft Corp. as some of the U.S. stocks that should benefit from rebounding economic growth in the euro zone this year. IBM earned 32 percent of its revenue from Europe, the Middle East and Africa last year, while the maker of the Windows operating system generated 47 percent of its sales from markets outside the U.S., according to data compiled by Bloomberg.