On CNBC’s “Halftime Report,” Siegel said he estimated fair market value for the Dow to be 18,000, adding that the run-up was likely to surpass that point in 2014.
“Bull markets usually carry 10 to 20 percent beyond that,” he said, referring to fair market value. “I’m not going to say that that’s going to happen this year. I’m just saying it could happen.”
While consensus places fair market value at a price-to-earnings ratio of around 15, Siegel noted that such a multiple includes stock-market valuations in high-interest environments.
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Removing interest-rate environments of 8 percent or higher, Siegel calculated an 18 to 19 P/E ratio for the market.
“That’s what I base my fair market value for the Dow and the S&P on,” he said. “We are going to have higher interest rates, no question about that. But they’re still very low on a historical basis.”
Siegel said that his 2014 outlook was based on earnings growth of 5 percent, “and that very well could be quite conservative.”
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“I actually think we’re going to get GDP growth north of 3 percent, even 4 percent is possible. And when you include the buybacks, the leverage, etc., we could have another 8 to 10 percent earnings,” he said, adding that those factors could put the Dow between 18,000 and 19,000, “maybe a little bit higher.”
Siegel reiterated that he was factoring in stronger growth to lead the index higher.
“Nothing is a slam-dunk, as we know, but certainly that’s looking far more favorable now than it did six months ago,” he said.
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Stocks have yet to peak, Siegel added, saying: “We still don’t have the public fully in the market.”
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