Stocks May Rally as Valuations Cheap, Wharton’s Siegel Says

March 17 (Bloomberg) -- Stocks in the developed world and emerging markets may rally in coming years as they trade below historical valuations, said Jeremy Siegel, a professor of finance at the University of Pennsylvania’s Wharton School.

Price-to-earnings ratios in emerging markets are “extremely cheap,” while the Standard & Poor’s 500 Index normally trades at 19 times earnings in periods of low interest rates, which is about 40 percent above current levels, he said.

“We could have a bull year for the next two to three years with gains of 10 to 15 percent per year in the S&P 500,” he said today at a conference in Santiago. “Stocks are still below the long-term trend and there is still room for them to rally.”

Siegel recommends investing in stocks with high dividend payments.

“The top dividend payers of the S&P 500 are the type of stocks you want to hold if you are a conservative investor in the U.S.,” he said.

To contact the reporter on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net