The stock market bubble is ready to pop, warns this bear

After a yr of exuberance surrounding synthetic intelligence (AI), some US shares at the moment are overvalued. And this has introduced the bears out, with one pessimist claiming the inventory market is about for a crash.

This investor is Michael Gayed, a portfolio supervisor at Tidal Monetary Group. In February, he famous the widening hole between mega-cap expertise shares and almost each different public firm. “I nonetheless suppose we’re all in lots of hassle,” he concluded slightly ominously. “All bubbles finish.”

Then in March, Gayed cited the rising worth of gold, long-term Treasury bonds and utility shares (three conventional flight-to-safety belongings). This, he argued, might be an indication of unhealthy issues to come back for the inventory market.

Excessive valuations

To be honest, he has some extent. The current rally in mega-cap shares has pushed the price-to-earnings (P/E) ratio of the S&P 500 index to round 27.

Excluding the pandemic when earnings have been thrown all around the store, that’s the very best it has traded at in 15 years.

In the meantime, the tech-driven Nasdaq 100 index trades for about 32 occasions earnings. That’s actually a giddy a number of.

Now, round a 3rd of my portfolio is made up of Nasdaq-listed shares. So how am I processing all this?

Properly, the very first thing to say is that I’m not promoting an excessive amount of. That’s as a result of no one is aware of whether or not we’re actually in a bubble or the place the highest of the market is. I purchase shares to carry for a few years. I’m not a dealer.

That stated, I do recognise the lofty valuation metrics right here. So I’ve been shifting my focus.

UK shares aren’t frothy

One FTSE 100 inventory that’s been turning my head recently is tools rental agency Ashtead Group (LSE: AHT).

Fairly actually, because it occurs. I’m without end driving previous the corporate’s brilliant inexperienced and yellow Sunbelt Rental equipment on the aspect of the highway. A digger right here, a generator there.

Maybe that’s not stunning. That is the biggest plant rent firm within the UK (and second within the US).

The share worth has tumbled 12.5% since 5 March after Ashtead warned that income for the 12 months to 30 April is now prone to be on the decrease finish of its 11%-13% steering vary. Or about $10.9bn.

One concern has been a scarcity of main disasters like floods, hurricanes and wildfires in North America. Whereas that’s undoubtedly nice for everybody else there, it has put a dampener on demand for Ashtead’s tools used to clear up the aftermath.

The inventory now trades for 17.5 occasions earnings. There’s threat on this valuation if earnings are additional revised down this yr.

Nevertheless, I’m extra within the subsequent decade. There’s a structural shift in the direction of renting tools slightly than proudly owning it. But leases nonetheless solely make up 55% of the huge US market, so the chance is huge.

Ashtead has spent $1.1bn on 50 bolt-on acquisitions stateside lately. But it’s hungry to safe extra market share and continues to vacuum up smaller competitors and add extra depots.

That appears good when there’s round $2trn price of giant US infrastructure initiatives beginning over the subsequent few years.

To my thoughts, Ashtead is the FTSE 100’s finest long-term development story and I’m eager to purchase extra shares.