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Companies Might Consider Investor Relations Strategies Amid Weak Stock Valuations

The current U.S. stock market is undervalued by historical standards, and companies coping with this situation might benefit from putting more time into strategies for investor relations.

Trouble for Stocks 

The current equity markets are generally cheap compared to their normal price, and investors have been fleeing these assets because they are wary of putting their money into stocks, according to Bloomberg.

The reluctance of these market participants has been unabated in the face of sharp appreciation in stocks, with the blue-chip S&P 500 Index surging 94 percent since the recent bull market started in March 2009, according to data compiled by Morningstar Inc. and Bloomberg.

The sentiment of investors was damaged significantly during the Financial Crisis, as these market participants suffered both equities that lost $11 trillion in value and record volatility in prices, the media outlet reports.

Companies that have stock that is publicly traded on exchanges such as these might want to pay greater attention to their investor relations strategies, since equities are having a more challenging time attracting interest than usual.

Lush Profits
The stock market manages to remain weak, even in the face of companies that have been generating significant profits and building their cash reserves. Data provided in the latest report on U.S. gross domestic product reveals that during the third quarter of 2012, after-tax profits were at their highest percentage of GDP on record, according to CNNMoney. During this quarter, corporate earnings totaled $1.75 trillion, which was 18.6 percent higher than the same period in 2011.

"Corporate profits took a big hit in the recession like everything else, but they've seen a massive bounce back,"Heidi Shierholz, an economist with liberal think tank the Economic Policy Institute told the news source.

In addition to these robust earnings during the third quarter, Bloomberg reports that companies have accumulated a cash horde of $1.03 trillion. Even many of these companies have established very strong financial positions, they be having challenges attracting the demand they need for their securities.

IPO Activity 
The market for initial public offerings (IPOs) in the United States has increased about $41.2 billion in value during 2012, according to the new source. Since companies holding these flotations are generally riskier than more established firms, they might also face challenges in winning over investors in the current market.

The IPOs of companies could be on the upswing, as these offerings are most likely to happen when growth is strong and the economy is expanding at an increasing pace, the media outlet reports.

Data compiled by Bloomberg indicates that IPOs raised $96.8 billion in 2000, which was the highest figure for this activity in 13 years. This strong performance happened as the economy surged 4.1 percent. The year that generated the least new capital from these flotations was 2009, and GDP fell 3.1 percent during the period.

Another factor that has been frequently credited for discouraging investors from putting their money into the stock market is volatility.

Global market participants have become fickle in their willingness to tolerate risk, changing their minds quickly based on important news, John Carey, who contributes to the management of around $200 billion at Boston-based Pioneer Investments, told the media outlet during a phone interview. In addition, investors may have to suffer the price fluctuations of stocks in order to benefit from the returns.

Since the current equity markets are being hampered by the risk aversion of investors, what is your firm doing to generate demand for its securities in the current environment? 

You can learn about best practices in investor relations by attending Proformative's Analytics: The MVP on your Investor Relations Team webinar on January 9th.