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CNBC PRO Talks

Veteran Wall Street strategist Stovall says market close to overvalued, but certain stocks are still cheap

Sam Stovall, a veteran Wall Street strategist known for his study of market patterns, sat down with CNBC's Mike Santoli for an in-depth interview on the various principles he uses to predict market returns and evaluate stocks.

Stovall explains why he believes the S&P 500 should be trading at around 2,340, or only about 2 percent higher from here.

"The reason we haven't stumbled with a P/E so high at this point is, we've had inflation in the low 2 percent area. So as a result, we can stand higher valuations when inflation itself is lower," he said.

In this exclusive conversation, Stovall, who first joined Standard & Poor's in 1989 and now serves as chief investment strategist at CFRA, defends his market-timing methods against the passive investing onslaught.

"The reason why history works is because one element has been consistent throughout the beginning of time and that is human reaction," Stovall said.

Other topics include:

  • His 'Rule of 20' method for evaluating stocks.
  • The best way to determine sector allocations.
  • Whether emerging markets could outperform developed markets this year.
  • Active versus passive investing and how to choose a management style.
  • The various ways retail investors can stay ahead of the curve by using history as a guide.

PRO subscribers can also read the entire transcript of the exclusive interview below.