Think a low price-to-earnings (P/E) ratio is a good thing? Think again.
It's kind of like a reflexive action — a habit that is so deeply ingrained and conditioned in the minds of investors who pray at the altar of low P/E's that some just can't get away from it. It's not always a good thing, and you should understand why, because it can help you avoid value traps.
Investors can't seem to make up their minds about whether or not the economy is heading into a recession or is starting to heat up. The usual suspects, widely regarded indicators, are sending out mixed signals. And stock valuations have been distorted by buybacks and other forms of financial engineering. That's why now, more than ever, it is critical to understand what the price-to-earnings ratios of the major sectors are telling us.